Eurozone Recession Fears... PMI Hits Lowest in 9 Years

Christine Lagarde, President of the European Central Bank (ECB). (Photo by CNBC)

[Asia Economy Reporter Yujin Cho] The Eurozone (comprising 19 countries using the euro) economy remains stuck in a downturn. As the likelihood of entering a recession around the fourth quarter increases, aggressive interest rate hikes aimed at curbing high inflation are expected to continue.

According to Bloomberg on the 24th (local time), S&P Global announced that the preliminary composite Purchasing Managers' Index (PMI) for the Eurozone fell to 47.1. This is below the baseline of 50 for the second consecutive month (previously 48.1) and also fell short of market expectations (47.6). The report explained, "This is the lowest level in nine years since April 2013," adding, "High inflation has hit demand, leading to continued production declines among companies, causing the index to fall below market expectations."

Production of goods and new orders have decreased for four consecutive months, marking the fastest decline since December 2012, excluding the COVID-19 pandemic period. In particular, goods production saw a sharp drop in the energy sector, and services rapidly contracted due to the cost-of-living crisis caused by high inflation.

On the same day, the UK’s preliminary manufacturing PMI for October also fell sharply from 48.4 in the previous month to 45.8, significantly below experts’ expectations of 48.0. According to S&P Global’s report, the Eurozone economy is expected to contract by 0.2% in the fourth quarter, with the pace of recession accelerating toward the end of the year.

US economic media CNBC analyzed that this Eurozone economic contraction stems from the shock of high inflation. Amid the prolonged adverse effects of the Russia-Ukraine war, the energy crisis has deepened, keeping inflationary pressures elevated. The Eurozone’s consumer price index surged to 9.9% in September, marking the highest level since related statistics began being compiled. Eurozone inflation shows no signs of peaking yet, and concerns about further increases persist as heating demand rises during the winter season.

Chris Williamson, an economist at S&P Global, said in an interview with CNBC’s Squawk Box Europe on the same day, "The economic situation is deteriorating quite rapidly." He added, "Considering the weakening demand and declining production, the Eurozone economy is expected to experience negative growth in the fourth quarter," and noted, "Expectations of an inevitable recession are increasing."

Despite recession concerns, the European Central Bank (ECB) is expected to take another 'giant step' by raising its key interest rate by 0.75% at its meeting on the 27th. The ECB, which started raising rates later than other central banks, increased its key rate by 0.50 percentage points in July for the first time in 11 years, and last month executed a giant step for the first time ever.

Christine Lagarde, ECB President, recently indicated additional hikes by stating, "We are still far from the interest rate level that can reduce inflation, and it is necessary to raise rates to a level that limits economic growth." If this continues, the Eurozone’s key interest rate is expected to rise to 2% by the end of the year.

This content was produced with the assistance of AI translation services.