Eurozone Recession Fears... PMI Hits Lowest in 9 Years (Comprehensive)

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), combining manufacturing and services 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 contracted rapidly due to the cost-of-living crisis caused by high inflation.

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. The U.S. economic media outlet CNBC analyzed that this Eurozone economic contraction stems from the shock of high inflation.

Amid the prolonged shock caused by the Russia-Ukraine war, the energy crisis has deepened, and inflationary pressures have not eased. Eurozone consumer prices surged to 9.9% in September, marking the highest level since related statistics began being compiled. With no signs of inflation peaking yet, additional increases are feared as winter heating demand rises.

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 "the outlook for an inevitable recession is 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, raised its key rate by 0.50 percentage points in July for the first time in 11 years and then took a giant step for the first time last month.

ECB President Christine Lagarde recently indicated further hikes, stating, "We are 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.

Meanwhile, the UK also announced that its composite PMI for October fell to 47.2 from 49.1 in the previous month. This marks the steepest decline in 21 months and is significantly below market expectations (48.1). The U.S. also dropped sharply to 47.3 from 49.5 the previous month. Due to the strong dollar, companies are struggling with exports, leading to the fastest contraction since the global financial crisis in 2009, excluding May 2020 during the early COVID-19 pandemic.

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