Production and demand fall
Germany weak – Eurozone slides into recession
10/24/2022 1:43 p.m
The purchasing managers’ index for industry and service providers is falling – a recession in the euro zone is becoming increasingly likely. Germany, where the index value is weaker than it has been since the first lockdown in spring 2020, has a significant share in this.
The euro zone is heading towards a recession, partly because of the weakness of its largest economy, Germany. The purchasing managers’ index for the private sector – industry and service providers together – fell by 1.0 to 47.1 points in October, as the financial services provider S&P Global announced in its survey of thousands of companies. The barometer, which is closely watched on the financial markets, thus deviated noticeably from the 50 mark, from which it signals growth.
“Given the intensified decline in production and the further weakening of demand, the euro zone’s economic output is likely to contract in the fourth quarter of 2022,” said S&P Global chief economist Chris Williamson. “This fuels speculation that a recession is becoming increasingly inevitable.” Banking economists see it that way too. “There is hardly any doubt: the economy in the euro area is in recession,” said Commerzbank economist Christoph Weil. The ongoing loss of purchasing power due to high inflation is leaving ever deeper signs of the brakes on private consumption.
The service sector in particular will feel this with full force. However, industry in the euro zone was hit even worse in October: Here, the fifth decline in production in a row was as severe as in the past ten years only during the first months of the pandemic. Only the areas of technology, industry-related service providers and pharmaceuticals and biotechnology reported growth this time. The chemical & plastics and basic materials sectors recorded the sharpest declines, which is likely due to their high energy dependency.
German industry is weakening
Export-dependent Germany is in a particularly bad position. Here, the purchasing managers’ index for the private sector fell by 1.6 to 44.1 points, the lowest level since the first corona lockdowns in early 2020. “The signs of an impending recession in the largest economy in the euro zone have increased,” said the company S&P economist Phil Smith. At the same time, German industrial production fell as sharply as it did almost two and a half years ago. “Responsible for this were the high energy costs and the persistently weak demand for manufactured goods,” said S&P Global. Overall, the prospects remain very gloomy.
“The strong price pressure, rising interest rates and customers’ increasing reluctance to spend due to fears of recession ensured that incoming orders in industry and the service sector each showed the highest minus since May 2020,” emphasized the experts with a view to Germany.
The European Central Bank (ECB) is putting the weakening economy in a quandary. Because of the record inflation, it is likely to raise its key interest rate again sharply on Thursday – for the second time in a row by 0.75 points to 2.0 percent. This means that borrowing costs are likely to continue to rise, which could put additional strain on the economy.