Euro-zone downturn deepens, making recession more likely



Private-sector activity in the euro zone contracted for a fourth month in October, reinforcing expectations that the bloc is headed for a recession.
An index of purchasing managers compiled by S&P Global slumped to its lowest level since April 2013, barring months when there were Covid-19 lockdowns. That was worse than economists had anticipated as record inflation hurts demand and some firms rein in production on weaker sales.
The steepest downturn came in manufacturing, especially energy-intensive sectors like chemicals and plastics. Services also shrank at a faster rate as consumers struggle with the cost-of-living crisis.

New orders for goods and services fell for a fourth month — to a pace not seen since December 2012, excluding lockdown months.
“The euro-zone economy looks set to contract in the fourth quarter given the steepening loss of output and deteriorating demand picture seen in October, adding to speculation that a recession is looking increasingly inevitable,” Chris Williamson, an economist at S&P Global, said Monday in a statement.
Across the 19-nation currency bloc, soaring costs have put a brake on the pent-up demand that followed the pandemic, while Russia’s stalled energy shipments are forcing households and industry to brace for potential outages this winter. Consumer confidence remains close to a record low.
BloombergCompanies reported fewer component shortages and improved shipping in October, though this was often linked to suppliers being less busy due to weaker demand. Input buying by manufacturers fell at one of the steepest rates since the global financial crisis, indicating lower production needs and increasingly widespread decisions to lower inventory due to weaker-than-expected sales.
The uncertain outlook is leading some firms to hold back on hiring, while others are cutting staff amid signs of surplus capacity.
Fourth-quarter contraction
Earlier readings for France and Germany also painted a bleak picture, with the private-sector activity in the former stalling for the first time since March 2021 and the latter contracting for a fourth month.
UK and US data are also scheduled for Monday — both are likely to show negative readings. Australia’s figure also was below the 50 threshold that separates expansion from contraction, while Japan grew again.
The euro-zone numbers suggest its economy will shrink by 0.2% in the fourth quarter, but the downturn may accelerating toward year-end, according to S&P Global’s report.
“Price pressures, meanwhile, remain stubbornly elevated, as rising energy and staff costs, and the weakened euro, offset any lowering of commodity prices linked to improving supply conditions,” Williamson said. “The elevated survey price gauges will likely add the European Central Bank’s resolve to tighten policy further in the coming months despite the growing recession risk.”
The ECB is expected to hike interest rates by 75 basis points this week for a second straight meeting.
ETRise MSME Day 2022 Mega Conclave with Industry Leaders. Watch Now.