Eurozone economic downturn deepens, Germany heads for recession

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Economic activity in the eurozone plummeted further in October and Germany, the EU’s top economy, looks headed for a recession, a closely watched survey showed Monday.

The S&P Global Flash Eurozone purchasing managers’ index (PMI) fell to 47.1 for October, down from 48.1 a month earlier, as soaring inflation and high energy prices buffeted Europe.

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A reading below 50 signals an economic contraction.

While the 19-nation eurozone looked likely to contract in the fourth quarter, the picture was worse in Germany, where the PMI dropped to 44.1, from 45.7 in September.

That was the lowest reading since the first business shutdowns in Germany when the COVID-19 pandemic hit.

The data adds “to the growing signs of an impending recession in the eurozone’s largest economy,” S&P Global Market Intelligence economics associate director Phil Smith said.

Both manufacturing and services in Germany were showing accelerated rates of shrinkage, though that had yet to feed through into jobs-shedding, the survey showed.

German businesses were “deeply pessimistic” about the year-ahead outlook.

In France, the second-biggest economy in the EU, the economy is stagnating, with a PMI of 50 compared with 51.2 in September.

Although France is suffering less than other countries in Europe from rising inflation, rising prices are still putting pressure on consumers, leading to a severe fall in factory orders.

Across the eurozone, the PMI indicated that factory output had dropped for the fifth consecutive month, at a rate unseen since the worst of the pandemic.

Supply congestion and shortages had eased a bit, against a backdrop of flagging demand. While input demand had slumped, rising energy bills and wage pressure kept costs high.

A eurozone-wide recession “is looking increasingly inevitable,” S&P Global Market Intelligence chief business economist Chris Williamson said.

“The region’s energy crisis remains a major concern and a drag on activity, especially in energy intensive sectors.”

The PMI data came ahead of a Thursday meeting of the European Central Bank’s governing board that is expected to deliver a big interest rate cut in a bid to cool inflation.

Inflation in the 19-nation eurozone stood at nearly 10 percent in September, five times the ECB’s target of two percent.

The German economy, whose energy-hungry industries relied heavily on Russian gas before the war, is now forecast to shrink by 0.4 percent in 2023.

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