Daily Management Review

October PMI For The Eurozone Is Close To A 3-Year Low, Raising Concerns Of A Recession


October PMI For The Eurozone Is Close To A 3-Year Low, Raising Concerns Of A Recession
According to a survey, business activity in the euro zone unexpectedly declined this month as demand declined throughout the region. This put the bloc's fourth quarter on the wrong foot and raised the possibility that it will enter a recession.
The European Central Bank, which meets on Thursday, will probably find the purchasing managers' survey from Tuesday to be disappointing. Additionally, current market pricing indicates that ECB President Christine Lagarde's "higher-for-longer" interest rate story may not hold up as long as some have thought.
The S&P Global-compiled HCOB flash euro zone Composite Purchasing Managers' Index (PMI), which is considered a reliable indicator of the state of the economy overall, dropped from 47.2 in September to 46.5 in October, the lowest level since November 2020.
It was the lowest reading since March 2013 outside of the months affected by the COVID-19 outbreak.
It surprised expectations in a Reuters poll that was expecting an increase to 47.4, as it was significantly below the 50 level that denotes growth in activity.
"The flash PMIs mark a poor start to October for the euro zone, especially after showing some early signs of recovery in September," said Rory Fennessy at Oxford Economics.
"If this trend continues, this poses downside risks to our stagnant growth forecast for Q4."
Germany, the largest economy in Europe, appears to be well into a recession as evidenced by its PMI, which revealed that business activity fell for a fourth consecutive month. This decrease was mirrored by a further decline in services.
As consumers struggle, particularly with rising food prices, German consumer mood is expected to decline for a third consecutive month in November, dashed hopes of a comeback this year, according to a separate survey released on Tuesday.
According to PMI data, business activity in France, the second-biggest economy in the euro zone, witnessed a significant decline in October. Even if the contraction lessened from September forward, S&P Global noted that it was still the second-deepest drop in nearly three years.
Businesses in Britain—a country not part of the European Union—reported yet another drop in activity this month, highlighting the possibility of a recession ahead of the Bank of England's interest rate announcement the following week.
The worst threat to the global economy at the moment is geopolitical tensions exacerbated by the Middle East conflict, but there are other threats as well, according to World Bank President Ajay Banga on Tuesday.
Fears are that Russia's ongoing invasion of Ukraine and Israel's military assault in Gaza, which began in response to a fatal strike by the Palestinian militant group Hamas on October 7, could turn into a regional conflict.
According to a new Reuters poll, the 20-country euro zone will only avoid a recession, although the economy was only projected to stagnate in the previous quarter and will do so once more this one.
An ECB survey released on Tuesday revealed that last quarter, despite demand declining more than anticipated due to rising borrowing costs and a worsening economic outlook, euro zone banks further restricted access to credit.
A significant portion of October's business activity came from companies clearing up backlogs, and overall headcount decreased for the first time since January 2021, indicating they don't anticipate a rebound anytime soon.
The PMI for the main services sector in the bloc fell to 47.8, a 32-month low, from 48.7. This was below every prediction in the Reuters poll, which had indicated that there would be no change from September.
This month's decline in service demand is more pronounced than it was in September. The new business index fell to 45.5 from 46.4, which was its lowest level since 2021's beginning.
The manufacturing PMI dropped from 43.4 to 43.0, its lowest level since May 2020, when the pandemic was starting to take hold of the world. This is the PMI's 16th month below 50. Predictions from the Reuters poll were 43.7.
An output-tracking index remained stable at 43.1.
A bleak picture was drawn by the survey's forward-looking indicators, which suggested there wouldn't be a turnaround anytime soon.
Factory managers' optimism about the upcoming year declined, as evidenced by the future output index, which fell to 50.3 from 51.6, its lowest value of the year.
"These surveys do nothing to change our view that the euro zone economy is likely to contract in Q4 after probably contracting in Q3," said Andrew Kenningham at Capital Economics.