Eurozone business activity contracts again in October

The S&P Global flash composite output index, which covers both the services and manufacturing sectors, fell to 47.1 from 48.1 in September, coming in below the 50.0 level that separates contraction from expansion for the fourth month in a row. Economists had been expecting a reading of 47.5.

This marked the fastest rate of decline since November 2020. Excluding pandemic lockdown months, the latest reading was the lowest since April 2013.

The eurozone services purchasing managers’ index fell to 48.2 in October form 48.8 in September, hitting a 20-month low. Meanwhile, the flash manufacturing PMI printed at 46.6, down from 48.4 a month earlier and hitting a 29-month low.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said: “The eurozone 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.

“While October’s headline flash PMI is consistent with GDP falling at a modest rate of around 0.2%, demand is falling sharply and companies are increasingly growing worried over high inventories and weaker than expected sales, especially as winter approaches. The risks are therefore tilted towards the downturn accelerating towards the year-end.

“While the rising cost of living remains the predominant cause of the economic slowdown, the region’s energy crisis remains a major concern and a drag on activity, especially in energy intensive sectors.”

Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said: “The silver lining in all this misery is that the bad news, primarily the energy crisis from the war in Ukraine and higher interest rates, are now well-known quantities. Both of these headwinds will a drag on economic activity in Q4, but we see early signs of relief. The plunge in gas prices, primarily due to mild weather and full inventories, is great news though we can’t be sure that it will last.

“Elsewhere, we expect the ECB to lift interest rates by 75bp this week, but we also suspect this will be the last of such moves, with the central bank slowing the pace of tightening between now and the end of Q1.”