A softening of recession in the Eurozone gives hope for a milder recession

LONDON – The fall in business activity in the euro zone eased slightly in November, giving a glimmer of hope that the expected recession may be shallower than feared, but consumers still cut spending amid a cost-of-living crisis, a survey showed on Wednesday.

There is growing evidence that the bloc is heading into recession, with economists in a Reuters poll published on Tuesday giving a 78% chance within a year that GDP is expected to fall by 0.4% this quarter and next.

S&P Global’s Composite Purchasing Managers’ Index (PMI), seen as a good indicator of overall economic health, fell to 47.8 from 47.3 in October, beating expectations for a decline to 47.0 in a Reuters poll.

However, November is the fifth month that the index has been below the 50 mark that separates growth from contraction.

“Today’s PMI data continues to show that the Eurozone is in recession, with surveys pointing to a milder contraction than in previous recessions,” said Paolo Grignani of Oxford Economics.

Germany’s decline in economic activity also eased in November, a sister survey showed, giving hope that the looming recession in Europe’s biggest economy will be milder than first feared.

However, activity in France fell for the first time since February 2021 as lower new orders weighed on the euro zone’s second-largest economy.

In Britain, outside the European Union, economic activity neared its fastest pace in nearly two years in November, adding to signs of a recession there.

Another Reuters poll gave Britain a 90% chance of recession within a year, but the Bank of England will continue to raise interest rates to tackle inflation, which is five times its 2% target.

STRUGGLE FOR SERVICES

Activity in the bloc’s dominant services industry eased again, with the headline index matching October’s 20-month low of 48.6. A Reuters poll had forecast a fall to 48.0.

Despite the ongoing slowdown, firms added workers, albeit at the slowest pace since March 2021. The services employment index fell to 51.7 from 52.5.

Manufacturing activity, hit particularly hard by rising energy prices and disruptions to supply chains, also declined, but at a slower pace. The core index rose to 47.3 from 46.4, higher than a Reuters poll estimate of 46.0.

An index that includes composite PMI rose to 45.7 from 43.8, but part of that came as jobs lagged.

New orders fell sharply again, and although there was a marked reduction in price pressures, they remained high. The product price index fell to 63.7 from 66.1, the lowest reading since March 2021.

“Input and output price indices declined, consistent with other evidence that headline inflation is nearing a peak,” said Jack Allen-Reynolds of Capital Economics.

“But both are still quite high, especially with service companies reporting that rising wages are putting upward pressure on costs.”

Inflation in the region hit 10.6% last month, more than five times the ECB’s 2% target, and the central bank is expected to add another 50 basis points to the deposit rate next month, so any sign of easing price pressures will be welcomed. by politicians. — Reuters