Euro zone August downturn deeper than was thought
The decline in euro zone business activity accelerated faster than expected last month, with the services industry falling into contraction, raising concerns of a possible recession.
/cloudfront-us-east-2.images.arcpublishing.com/reuters/FGUNU77PDJJ3ZI4G75I2OEUAJE.jpg)
Topics
Posted 9/5/2023, 8:20:00 AM
reuters.com
Relevant topic timeline:
The euro zone's business activity contracted in August, reaching its lowest level since November 2020, raising concerns about the region's economic growth and leading to speculation about the European Central Bank's next steps.
German business activity, particularly in the services sector, experienced its sharpest decline since May 2020, leading to concerns about the country's outlook for the remainder of the year and potential stagflation, as both manufacturing and services sectors are contracting.
Euro zone business activity declined more than expected in August, particularly in Germany, while some inflationary pressures returned, posing a challenge for the European Central Bank's efforts to control inflation without causing a recession.
Germany's business activity has seen a sharp decline, leading to concerns of a recession, as the country's Purchasing Managers' Index (PMI) dipped to its lowest level in over three years. This decline in activity is impacting the wider eurozone economy as well, with the region at risk of slipping into recession. This economic downturn is accompanied by a worrying uptick in inflation and slow growth, particularly in Germany.
The UK and eurozone economies are at risk of recession due to a significant slowdown in private sector activity, with the UK experiencing its poorest performance since the Covid lockdown and Germany being hit particularly hard; the US is also showing signs of strain, with activity slowing to near-stagnation levels.
U.S. business activity in August approached stagnation, with the weakest growth since February and a contraction in the service sector, indicating a more tepid economic outlook than previously thought.
Recession fears return as a key business survey shows a significant contraction in the UK economy, signaling the detrimental effects of interest rate rises on businesses and heightening the risk of a renewed economic downturn.
The flash surveys from S&P Global show a slowdown in US manufacturing and services sectors, raising concerns about economic growth in the third quarter and indicating a possible contraction in September due to weak demand and rising input costs.
German business activity contracted at its fastest rate in over three years in August, with both the services and manufacturing sectors experiencing a downturn, as rising interest rates, customer uncertainty, and high inflation weighed on demand for goods and services.
The contraction in euro area business activity has intensified, particularly in Germany, leading to expectations that the European Central Bank will pause its interest-rate hike campaign; US mortgage applications for home purchases have hit a three-decade low due to rising borrowing costs; South Korea's exports continue to decline, indicating lackluster global trade; Turkey's interest-rate increase has triggered a rally in the country's assets; shrinking water levels at the Panama Canal due to climate change may cause delays in restocking inventories before Christmas.
The growth in lending to euro zone companies slowed in July due to higher interest rates, signaling a potential brake on credit creation and economic growth.
Business activity in Britain's services sector declined in August, the first drop since January, due to higher interest rates dampening consumer and corporate demand, although the decrease was less severe than initially estimated.
Global business activity slowed further last month as services firms struggled with weak demand, potentially leading to a recession in the euro zone and a decline in the UK's private sector activity.
China's services sector experienced a slowdown in business activity, resulting in the lowest level in eight months, as weaker foreign demand and sluggish overseas orders impacted consumption, despite economic stimulus efforts.
U.S. manufacturers reported a decline in business activity for the 10th consecutive month in August, but the declines are becoming less widespread, suggesting that the trough in the cycle may be approaching.
Europe's struggle with inflation and economic growth contrasts with the United States, as the European Central Bank's aggressive tightening risks pushing the euro zone into a downturn, with the manufacturing and services sectors already showing signs of contraction.
The euro zone's economy is expected to grow slower than previously forecasted due to high inflation and Germany slipping into recession, according to the European Commission.
The euro zone economy is expected to contract this quarter and remain in recession as the impact of central banks' interest rate rises hampers growth, according to a survey by HCOB's flash euro zone Composite Purchasing Managers' Index (PMI), with Germany and France experiencing significant declines in business activity.
U.S. business activity remains sluggish in September, with the services sector hovering at its slowest pace since February and new order activity hitting its lowest level of the year, according to a survey by S&P Global, which also indicated that job growth and consumer spending have held steady despite concerns over interest rate hikes and inflation.