Economy

Euro-area businesses signal slump may be shallower than feared

S&P global survey shows recession shows recession still likely across Europe

The report by S&P indicates the euro zone is still likely to fall into recession Photograph: iStock

Wed Nov 23 2022 - 09:37

Euro-area businesses see tentative signs that the region’s economic slump may be easing as record inflation cools and expectations for future production improve.

A gauge measuring activity in manufacturing and services unexpectedly rose in November, according to S&P Global. While it still firmly indicates a recession in the 19-nation region is under way, it offers some room to think the downturn may be shallower than previously predicted.

In Germany, Europe’s largest economy, purchasing managers at factories reported an improvement in the availability of supplies and shorter delivery times for inputs. Private-sector output still shrank for a fifth consecutive month, with France seeing its first contraction since February 2021.

For the euro area, data are consistent with a drop in gross domestic product at a quarterly rate of just over 0.2 per cent, according to S&P Global. Its composite purchasing managers’ index rose to 47.8 in November from 47.3 in the previous month. A level above 50 would indicate growth.

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“It’s clear that manufacturing remains in a worryingly severe downturn, and service sector activity is also still under intense pressure,” said Chris Williamson, an economist at S&P Global. “A recession therefore looks likely, though the latest data provide hope that the scale of the downturn may not be as severe as previously feared.”

While orders continued to fall at a steep rate in November and employment growth moderated as a result, warm weather has alleviated some fears of energy shortages in the coming months. Price increases have also eased.

“Not only should this help contain the cost-of-living crisis to some extent, but the brighter inflation outlook should take some pressure off the need for further aggressive policy tightening,” Williamson said.

Policymakers at the European Central Bank have signalled they’re far from done in raising interest rates and plan to soon start shrinking the institution’s balance sheet. At the same time, appetite for a repeat of the outsize three-quarter point hikes of September and October seems to be waning, with even some of the more hawkish officials embracing a more moderate, 50 basis-point move.

PMI readings for the UK and the US later on Wednesday are predicted to show a lack of growth in both economies. Australian data published earlier showed the PMI index fell to 47.7 from 49.8 in October, the lowest reading since January. – Bloomberg

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