Steep decline in eurozone activity as ‘shallow recession’ approaches

Recession fears mounted after gloomy survey data showed euro-zone demand contracted in July.

Rating agency S&P’s flash eurozone purchasing managers’ index (PMI) showed manufacturing fell to 49.4 from 52.0 in June, a 17-month low and the first drop since February 2021.

Anything below 50 indicates a contraction.

The strongest drop in activity was registered in Germany, while France experienced a sharp slowdown.

July’s decline was led by a sharp drop in manufacturing output to 46.1, a more than two-year low, with chemical companies and automakers leading the fall.

Services grew modestly, but consumer-facing sectors such as tourism, media and transport either stalled or declined, reversing the growth seen in the spring.

Chris Williamson, Chief Operating Officer of S&P Global Market Intelligence, said the figures suggest the economy could contract by 0.1 percent in the third quarter.

The Central Statistics Office recently revised Ireland’s gross domestic product down to 6.3 percent from 10.8 percent in the first quarter as multinational companies sent home more profits.

But official forecasts say Ireland’s economy will grow by an average of around 4 per cent this year and next, well ahead of the eurozone and the wider EU.

The S&P index saw new orders for goods and services fall for the first time since February 2021, while factories saw the largest monthly decline in upstream purchases since early 2020.

The survey showed the largest-ever accumulation of unsold finished goods, although price inflation eased slightly and pressure on the supply chain eased.

Business expectations for the coming year fell to their lowest level since May 2020.

The news sent the euro back falling just a day after it was held back by the European Central Bank’s rate hike and new bond market bailout.

ING senior economist Bert Colijn said the data suggests the 19-strong euro zone is “moving rapidly towards a (shallow) recession” and forecast the ECB’s interest rate path would be flatter.

After the surprisingly large interest rate hike by the ECB on Thursday, he expects further rate hikes of half a point this year. Steep decline in eurozone activity as ‘shallow recession’ approaches

Fry Electronics Team

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