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25 Oct, 2022 06:01

Eurozone recession more likely as business activity slows – Bloomberg

Companies are slashing manufacturing due to inflation from rising energy costs
Eurozone recession more likely as business activity slows – Bloomberg

Private-sector activity in the Eurozone took another hit in October as the Purchasing Managers’ Index, compiled by S&P Global, slumped to its lowest level since April 2013, excluding pandemic lockdowns, Bloomberg reported on Monday.

The index fell to 47.1 this month, down from 48.1 in September, which was worse than economists had anticipated. A reading below 50 indicates a contraction. With business activity slowing, fears of a looming recession are mounting across the euro area.

The steepest activity declines have been reported in manufacturing, especially in energy-intensive sectors such as chemicals and plastics, although services output also dropped for a third consecutive month as consumers struggle with the cost-of-living crisis, according to data.

Demand for goods and services shrank as companies and households are facing pressure due to inflation, which is largely stemming from skyrocketing energy costs.

“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,” an economist at S&P Global, Chris Williamson, said in a statement.

While some firms have even reported improved shipping in October, economists point out that suppliers were less busy due to falling demand. According to the outlet, input buying by manufacturers “fell at one of the steepest rates since the global financial crisis.”

“Price pressures, meanwhile, remain stubbornly elevated, as rising energy and staff costs, and the weakened euro, offset any lowering of commodity prices linked to improving supply conditions,” Williamson said, adding that the situation economically “is getting worse quite rapidly.”

The S&P Global report suggests that the economies of the 19 countries that use the euro currency will drop by 0.2% in the fourth quarter and points out that the downturn may accelerate. Given that some economists are already pricing in an economic slowdown by the end of the year, a number of firms across the euro area have suspended hiring, while others are cutting down on staff.

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