The Eurozone’s economy experienced a contraction in the third quarter, as demand fell at its fastest pace in nearly three years, according to data compiled by S&P Global. The latest Composite Purchasing Managers’ Index (PMI) for the Eurozone, which reflects the overall economic health of the region, increased slightly to 47.2 in September compared to August’s 33-month low of 46.7. However, the figure remained below the critical 50 level, indicating that the economy is still contracting.
The decline in the Eurozone’s economy has been driven by a deepening decline in the manufacturing sector, which has been shrinking for four consecutive months. The services sector also experienced a decline in output, further contributing to the overall contraction.
Adding to the negative economic outlook, retail sales in the euro area dropped more than expected in August, signaling weaker consumer demand amidst high inflation. Additionally, the composite new business index for September, which monitors overall demand, plummeted to its lowest level since November 2020.
Economists, such as Franziska Palmas at Capital Economics, believe that these indicators are consistent with their view that the Eurozone economy will enter a recession in the second half of 2023.
A separate survey revealed that manufacturing activity across the Eurozone remained in a broad-based downturn in the previous month due to plummeting demand. However, there was a glimmer of positivity in the services sector, as the employment index for services firms increased from 50.4 to 51.5, according to S&P data. This indicates that there is still a demand for workers in the services sector and that Eurozone firms are expanding their teams, despite the overall decline in new business.
The current economic challenges facing the Eurozone have prompted concerns about the region’s economic outlook. Some economists even suggest that Germany, the largest economy in the Eurozone, could become the “Sick Man of Europe,” according to a report by Deutsche Bank.
Amidst this economic downturn, it is crucial to closely monitor developments in the Eurozone and assess the potential implications for both the region and the global economy.