Eurozone business activity slides faster than feared

Business activity in the eurozone has suffered its biggest contraction for almost two years, adding to signs that the bloc is entering a recession because of rising prices and plummeting output among manufacturing and services companies.

S&P Global’s flash eurozone composite purchasing managers’ index, a key gauge of business conditions, fell 1 point to 47.1, figures out on Monday showed. That is its lowest level since November 2020 and the fourth consecutive month below the crucial 50 mark separating growth from contraction.

“The eurozone economy looks set to contract in the fourth quarter given the steepening loss of output and deteriorating demand picture seen in October, adding to speculation that a recession is looking increasingly inevitable,” said Chris Williamson, chief business economist at S&P Global.

The results of the monthly survey, which showed falling factory output, declining new orders, rising factory gate prices and plummeting expectations, were worse than expected by economists polled by Reuters.

Manufacturers reported a fifth consecutive decline in factory output, underlining the challenges weighing on the eurozone economy, while services companies said new orders fell at a faster rate as consumers facing soaring energy and food costs cut back on spending.

Companies in all sectors reported that cost pressures reduced slightly, but prices charged for goods and services were rising at a rate S&P said was the sixth fastest since its data started in 2002.

Supply chain constraints eased slightly as supplies of key raw materials improved. Job growth increased marginally from October, but remained low compared with the past 18 months.

Line chart of Eurozone purchasing managers’ index showing Fall in eurozone business activity points to another recession

German business activity contracted in manufacturing and services, dragging its PMI reading down 1.6 points to 44.1, its lowest level since May 2020. “High price pressures, rising interest rates, and growing hesitancy among customers due to recession fears all acted to suppress demand,” S&P said.

French companies reported a stagnation of activity with expansion in services activity offsetting a decline in manufacturing to take their PMI reading down 1.2 points to 50, a 19-month low. Factory orders fell at a pace only exceeded in the 2008 financial crisis and 2012 eurozone debt crisis.