Growth in eurozone enterprise exercise suffered a pointy slowdown in June, in line with a carefully watched survey of corporations, intensifying issues that the fallout from Russia’s invasion of Ukraine may drag the bloc into recession.
S&P Global mentioned its flash eurozone composite buying managers’ index, which takes the heartbeat of enterprise exercise, fell to a 16-month low as producers’ output and new orders each fell and firms complained of excessive inflation, weak demand and political uncertainty.
The information pushed European share indices decrease on Thursday and prompted merchants to cut back their bets on how a lot the European Central Bank will increase rates of interest this yr, sending authorities bond costs up. The euro fell 0.7 per cent in opposition to the greenback to $1.0497.
Christoph Weil, an economist at Commerzbank, mentioned: “Today’s figures should prompt the ECB to raise interest rates rather cautiously.”
Economists consider the eurozone dangers falling right into a recession later this yr as Russia squeezes pure fuel provides to Europe, file inflation eats into client spending, and the ECB raises rates of interest.
Jens Eisenschmidt, chief Europe economics at Morgan Stanley, mentioned the PMI knowledge raised the prospect that an anticipated stalling of the financial system may arrive earlier than anticipated. A recession was “rather likely” if Russia continues to considerably minimize the provision of pure fuel to Europe, creating potential shortages.
The European Commission mentioned on Tuesday that its flash client confidence indicator for the eurozone had fallen 2.4 factors to minus 23.6 this month, its weakest studying since an all-time low, recorded simply after the Covid-19 disaster began in April 2020.
“With the price indices remaining extremely strong, the eurozone appears to have entered a period of stagflation,” mentioned Jack Allen-Reynolds, an economist at Capital Economics, referring to a Nineteen Seventies-era mixture of hovering inflation and stagnant progress.
The composite PMI for the eurozone in June was 51.9, down from 54.8 final month. The studying fell effectively under the consensus economists’ expectations of 54 to hit its lowest stage because the pandemic was nonetheless proscribing a lot of regular life in early 2021.
A PMI rating above 50 signifies {that a} majority of companies are reporting increased exercise ranges than a month in the past. But S&P Global mentioned its month-to-month survey of buying managers pointed to “an imminent downturn unless demand revives”.
New orders for items and providers did not develop for the primary time since March 2021, it mentioned, including that producers’ output fell for the primary time in two years. A surge in tourism and recreation exercise in April and May slowed “to near a standstill” in June. Business expectations for the yr forward fell to the bottom since October 2020.
Price pressures remained at close to file ranges for eurozone corporations, regardless of rising at a slower charge for the third consecutive month, which S&P Global mentioned “hinted at a peaking in the rate of inflation”. Factory output “continued to be constrained by widespread supply shortages” attributable to the struggle in Ukraine and Covid lockdowns in China.
The PMI for eurozone providers fell to a five-month low of 52.8, whereas the studying for manufacturing hit a 22-month low of 52.
Confidence amongst French companies fell to its lowest stage for 19 months, with a few of them complaining of elevated political uncertainty after President Emmanuel Macron misplaced management of the nationwide meeting in final weekend’s parliamentary election.
