Europe’s PMI data shows weakening economy

In a worrisome turn of events for the Eurozone, private-sector activity within the region has continued its descent in September, pointing towards a potential economic contraction during the current quarter. The latest data, derived from an index based on surveys conducted by S&P Global among purchasing managers, reveals a disheartening fourth consecutive month of falling output, settling at a concerning 47.1. While this does represent a marginal improvement over August figures, it remains significantly below the crucial threshold of 50, which denotes economic contraction. Alarmingly, economists had previously projected a more modest decline, with expectations hovering at 46.5.

Cyrus de la Rubia, the Chief Economist at Hamburg Commercial Bank, expressed his concerns, stating that they expect the Eurozone to enter a contraction in the third quarter. Our nowcast, incorporating the PMI indices, anticipates a drop of 0.4% when compared to the second quarter.

Despite managing to avoid a recession following Russia’s incursion into Ukraine, the Eurozone now grapples with a slew of economic challenges, including surging energy prices, escalating borrowing costs, and a noticeable dip in demand from key export markets such as China. While there appears to be a consensus acknowledging the Eurozone’s turbulent economic landscape, the European Central Bank (ECB) maintains a different perspective. According to the latest forecasts from the ECB, the third quarter is seen as a period of stagnation rather than contraction, with the economist consensus projecting a meagre 0.1% growth.

ECB Chief Economist Philip Lane, during a recent interview with Yahoo Finance, conveyed his optimism, stating, “The overall environment remains resilient. Because of the pandemic, household balance sheets and corporate financial positions appear more robust than usual, eliminating the toxic mix that typically precipitates a deep recession. We do anticipate a resurgence in economic activity next year and the subsequent year, which will ultimately steer the European economy towards growth.”

While the Eurozone grapples with adverse economic indicators, the ECB remains cautiously hopeful, maintaining its outlook for a brighter economic future. However, the spectre of economic contraction looms, prompting stakeholders to monitor developments closely as the Eurozone navigates these challenging waters.