Euro zone business activity took a surprise turn for the worse this month as demand fell in a broad-based downturn across the region, a survey showed, suggesting the bloc may slip into recession.
HCOB’s flash euro zone Composite Purchasing Managers’ Index (PMI), compiled by S&P Global and seen as a good guide to overall economic health, fell to 46.5 in October from September’s 47.2, its lowest since November 2020.
Outside of the Covid-19 pandemic months it was the lowest reading since March 2013.
It was well below the 50 mark separating growth from contraction and confounded expectations in a Reuters poll for an uptick to 47.4.
“In the euro zone, things are moving from bad to worse,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.
“We wouldn’t be caught off guard to see a mild recession in the euro zone in the second half of this year with two back to back quarters of negative growth,” the economist added.
While the 20-country euro zone will narrowly dodge a recession, according to a recent Reuters poll, the economy was expected to have only flatlined last quarter and will do the same again in the current one.
A chunk of October’s activity was generated by firms completing backlogs of work and suggesting they do not expect a turnaround anytime soon, and overall headcount was cut for the first time since January 2021. The composite employment index fell to 49.4 from 50.8.
“Service providers’ hiring came almost to a standstill. Manufacturing companies are not just continuing to cut staff, they are ramping up job shedding plans,” de la Rubia said.
The PMI covering the bloc’s dominant services industry sank to a 32-month low of 47.8 from 48.7. That was below all forecasts in the Reuters poll which had predicted no change from September’s reading.
Demand for services has fallen again this month and at a sharper rate than in September. The new business index dropped to 45.5 from 46.4, its lowest since the start of 2021.
The manufacturing PMI fell to 43 from 43.4, marking its 16th month below 50 and the lowest since May 2020 when the pandemic was cementing its grip on the world. The Reuters poll had predicted 43.7.
An index measuring output held steady at 43.1.
Suggesting there will not be a turnaround anytime soon, forward looking indicators in the survey painted a gloomy picture.
Optimism about the coming 12 months among factory managers waned, with the future output index dropping to 50.3 from 51.6, marking its lowest reading this year.