Euro zone likely entering recession as price rises hit demand

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A downturn in business activity across the euro zone deepened in September, according to a survey which showed the economy was likely entering a recession as consumers rein in spending amid a cost of living crisis.

Overall demand in the euro zone fell to its lowest since November 2020, when the continent was suffering a second wave of COVID-19 infections. The new business PMI fell to 46.0 from 46.9.

The euro zone services PMI fell to 48.9 from 49.8, its second month sub-50 and the lowest reading since February 2021. The Reuters poll had predicted a more modest fall to 49.0. With prices on the rise again and demand falling, optimism about the coming 12 months waned. The business expectations index fell to 53.8 from 56.6, its lowest since May 2020.

Manufacturers also had a worse month than predicted. Their PMI sank to 48.5 from 49.6, compared to the 48.7 forecast in the Reuters poll and the lowest since June 2020. An index measuring output, which feeds into the composite PMI, nudged down to 46.2 from 46.5., which raised its key interest rates by 75 basis points earlier in September to try and tame inflation running in August at over four times its target, the survey showed prices had risen faster this month.

Both the input and output manufacturing prices indexes reversed a downward trend and rose. The input price index reached a three-month high of 76.4 from 71.7.Reporting by Jonathan Cable; Editing by Susan Fenton

 

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