According to a survey released on Monday, the euro zone’s business activity fell dramatically and unexpectedly this month as the region’s leading services sector stagnated and the manufacturing sector’s decline quickened.
Germany, the largest economy in Europe, saw its decline worsen, and France, the second largest economy in the currency union, saw its contraction resume after August’s Olympic boost. This suggests that the slump was widespread.The euro plunged precipitously, headed for its largest daily decline versus the dollar in over three months, as speculation of further policy easing by the European Central Bank was stoked by this.
This month, HCOB’s preliminary composite euro zone Purchasing Managers’ Index (PMI), which is calculated by S&P Global, fell below the 50-point threshold that distinguishes growth from contraction for the first time since February, falling to 48.9 from August’s 51.0.A slight decrease to 50.5 was projected by a Reuters survey.
As the Olympic flame went out, so did hope for the euro zone. The PMI experienced a steep drop in September following its increase in August. As fears about inflation lessen, this heightens economic concerns within the bloc, according to ING economist Bert Colijn.
Demand as a whole declined at its quickest rate in eight months. From 49.1, the new business index fell to 47.2.
The services PMI fell from 52.9 to 50.5, which was far lower than the Reuters poll’s prediction of a more moderate dip to 52.1.
The report caused the yields on euro zone government bonds to plunge, with German debt yields plunging the most.
The German economy shrank by 0.1% in the second quarter, and according to the survey released on Monday, the decline continued into the third. Typically, two consecutive quarters of contraction are used to characterize a recession.According to Hamburg Commercial Bank senior economist Cyrus de la Rubia, “a technical recession looks to be baked in.” He predicted that Germany’s GDP would contract by 0.2% this quarter.
EASE IS PRICE-PRESSURED
Even if businesses increased their prices more slowly, there was a decline. The output prices index registered at 52.0 in August, down from 53.7 in August, the lowest level since April 2021, as services inflation moderated.
The one encouraging development is the reduction in price pressure. This will give the European Central Bank comfort and could increase the likelihood that officials will lower the deposit rate once more in October, according to Capital Economics’ Andrew Kenningham.
As inflation declines and the euro zone’s economic growth falters, the European Central Bank (ECB) lowered interest rates once more on September 12 and indicated that borrowing costs will be on a “declining trend” in the coming months.
According to its chief economist last week, the ECB should continue lowering interest rates gradually but might have to accelerate reductions if the economy weakened.
Globally, monetary policy is becoming more lax. For the first time in months, China’s central bank injected cash into its banking system on Monday, while the U.S. Federal Reserve began an anticipated round of rate cuts last week with a more significant than typical 50 basis point reduction.
Businesses outside of the European Union in Britain also reported slower growth this month, which may have encouraged the Bank.
