Euro zone/PMI: Europe is heading for a recession, inflation weighs

by Jonathan Cable

LONDON, Sept 5 (Reuters) – The euro zone appears virtually doomed to recession, with PMI surveys released on Monday showing a deepening crisis linked to the rising cost of living and a worsening outlook prompting consumers to cut back on spending .

The rise in prices within the community bloc last month reached 9.1% year on year, a level more than four times higher than the 2% target of the European Central Bank (ECB), which meets on Thursday.

Markets are pricing in a 75bp rate hike from the ECB, which could add to the pain for consumers and businesses as the economies of the 19 countries using the single currency are already slowing.

The euro fell to a new 20-year low against the dollar on Monday, at 0.9879, largely due to Russia’s decision to halt the Nord Stream 1 gas pipeline indefinitely, which was due to restart on Saturday.

The price of gas, driven by fears of a shortage, jumped during the session by more than 30% to 284 euros per megawatt hour.

The S&P Global PMI composite index, which summarizes a survey of purchasing managers (PMI) in industry and services in Europe, considered a reliable barometer of the evolution of economic activity as a whole, fell last month to 48.9, an 18-month low, after July’s 49.9.

A first estimate had given it at 49.2 last month. The bar of 50 separates contraction and growth of the activity.


“PMI surveys indicate that the Eurozone is entering recession sooner than we had estimated, led by Germany, the bloc’s largest economy, and we now expect the Eurozone to experience a recession that is extended for three quarters,” said Peter Schaffrik, group economist at Royal Bank of Canada.

“This revision is mainly linked to the evolution of energy prices, which remain high despite their decline in recent days, which means that their impact on household spending will be greater than expected so far”, he added.

PMI surveys in the services sector reflect a second consecutive month of contraction in activity in Germany contracted in August for the second consecutive month with an index at 47.7 after 49.7 in July, and a slowdown in France at 51.2 after 53.2 in July.

In Italy, activity returned to slight growth at 50.5 after 48.4 in July, while in Spain it recorded its weakest growth since January with an index at 50.6 against 53.8 in July.

The PMI for services in the euro zone stood at 49.8 in August, falling below the 50 threshold for the first time since 2021. The first estimate put it at 50.2 and in July it had come out at 51.2.

In Britain, the economy ended August on a much weaker note than initially estimated, with activity in the private sector as a whole contracting for the first time in a year and a half. (Report Jonathan Cable; French version Claude Chendjou, edited by Marc Angrand)

Source link -91