The fall in economic activity in the Eurozone deepens

The fall in economic activity in the Eurozone deepens

In the case of the 19 countries of the Eurozone, annual inflation in August was 9.1%, a historical record / Photo: AFP

Private activity in the Eurozone contracted for the third consecutive month during September, affected by inflation, according to preliminary data from the Purchasing Managers’ Index (PMI) published by the rating agency S&P Global.

The index, based on data provided by manufacturing and service companies, marked 48.2 points in August, heightening fears that this will translate into a recession.

This is its lowest level in the last twenty months and a decline compared to the 48.9 points that it had registered in AugustJuly 49.9 and June 52.

If the number of the indicator – which measures variables such as production, new orders, prices and employment – is greater than 50, economic activity shows expansion, while if it is lower it is contracting.

“The economic contraction in the Eurozone deepened in September and the level of decline accelerated at a rate that, if the pandemic is removed, is the highest since 2013”S&P report

Among the various components, the manufacturing industry is the most affected, reaching lows not seen since June 2020 (it fell from 49.6 points to 48.5) while services added their second month of contraction to stand at 48.9 points, a minimum of 19 months.

“The economic contraction in the Eurozone deepened in September and the level of decline accelerated at a rate that, if the pandemic is removed, is the highest since 2013,” the S&P report stressed.

Photo Carlos Brigo
Photo: Carlos Brigo

perspectives

The outlook for the coming months is also not positive and the contraction is expected to “gain further momentum in the coming months,” according to data on new orders and production expectations.

After a strong recovery due to the lifting of health restrictions, the continent was affected by an acceleration in inflation, first of all, due to difficulties in supply chains, a factor that later lost ground in the face of increases in the cost of energy and food, which have had an impact on purchasing power and demand.

In the case of the 19 countries of the Eurozone, annual inflation in August was 9.1%, a historical record, in an acceleration that has prompted the European Central Bank (ECB) to arrange its largest interest rate hike of his story — by 75 points — earlier this month.

For their part, among the countries, Germany and France, the two main economies in the euro area, do not escape the trend.

In Germany, the PMI for July marked the worst data since May 2020, reaching 45.9 points.

photo file
Photo file.

“Germany is facing the most difficult conditions, with the economy deteriorating at a rate not seen, if the pandemic is excluded, since the global financial crisis,” Chris Williamson, chief economist at S&P Global, said in a statement.

Meanwhile, for Phil Smith, associate director of the entity, the numbers show that the German economy “will contract during the third quarter.”

Outside the Eurozone, the UK posted 48.4 points in its index, a 20-month low, with its economy already “possibly in recession.”

For now, the negative data in the activity of the Eurozone is not reflected in the level of employmentalthough, according to S&P, the August expansion in the labor market was the minimum in 17 months, “reflecting caution when hiring.”

“A recession is on the horizon for the Eurozone as companies are reporting worsening market conditions and intensifying energy-related price pressures,” Williamson warned, noting that indicators point to a decline of 0. .1% of GDP in the third quarter and a “deepening” of the decline for the fourth.

He also stated that, although “there were some signs of improvement in the supply chains, the focus of concern clearly moved from these to energy and the increase in the cost of living, which not only affects demand but also limits manufacturing production in some cases.



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