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Business activity in the eurozone declined at a steeper rate than expected this month, according to a closely watched survey, dealing another blow to the region’s struggling economy.
The flash S&P Global composite purchasing managers’ index, a measure of activity at companies across the bloc, fell to a two-month low of 47, down from 47.6 a month earlier, after contraction of activity in both the services and manufacturing sectors.
The result was further below the 50 mark that separates contraction from expansion and lower than the 48 reading forecast by economists in an earlier Reuters poll. S&P Global said the survey showed eurozone business activity had declined in the fourth quarter at the fastest pace for a three-month period since the pandemic hit in early 2020.
Executives across the bloc added to fears of a looming downturn by reporting falling new orders, shrinking backlogs of outstanding work and job cuts. However, companies still reported their selling prices rose at a faster pace, pointing to persistent inflation.
The findings, combined with a sharp cut to 2024 German growth forecasts by the country’s central bank, pointed to further weakness in the eurozone economy, which shrank 0.1 per cent in the third quarter after stagnating for much of this year. High inflation, rising borrowing costs and declining global trade have been weighing on activity.
The survey also supported the ECB’s caution on how quickly inflation will continue to fall as rapid wage growth pushes up price pressures in the labour-intensive services sector.
The findings “point to a deepening recession and easing labour market but not yet to a decisive turnaround in inflationary pressures”, said Andrew Kenningham, an economist at consultancy Capital Economics. “However, we expect that to change in the coming months as the recession drags on.”
Services companies reported the fastest increase in their selling prices since July despite a cooling of input cost inflation, S&P said. This offset an eighth consecutive drop in goods prices by manufacturers, which was the smallest drop since May.
“Even though input prices increased at a modestly slower rate, companies were able to raise output prices even more than in previous months,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, which sponsors the survey. “This suggests that businesses were successful in transferring a portion of the cost increases to customers.”
Another contraction in eurozone gross domestic product in the fourth quarter would raise questions about whether the European Central Bank was too optimistic in the growth forecasts it published on Thursday after it kept interest rates on hold. The ECB forecast the bloc would return to slight growth of 0.1 per cent in the fourth quarter.
Germany’s central bank added to the impression of a stagnant eurozone economy on Friday by cutting its growth forecast for next year from 1.2 per cent to 0.4 per cent, while predicting a slightly less deep contraction than initially feared of 0.1 per cent this year.
“The recovery has been postponed by around three quarters,” the Bundesbank said on Friday, blaming its gloomier outlook on “weaker than expected foreign demand in industry”, while adding that “private consumption is hesitant and higher financing costs are dampening investments”.
German inflation would slow from 8.7 per cent last year to 6.1 per cent this year and 2.7 per cent next year, the Bundesbank said, adding that it expected a “significant jump” in December as energy prices will be higher than a year ago when the government paid most households’ gas bills.
It also warned that inflation in Europe’s largest economy would remain above the ECB’s 2 per cent target for several years, forecasting 2.5 per cent in 2025 and 2.2 per cent in 2026.
“Inflation in Germany is on the decline, but it is still too early to give the all-clear,” said Bundesbank president Joachim Nagel.
Source: Economy - ft.com
