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It's getting harder! Europe saw the biggest drop in demand in three years!
Oct 10,2023
According to the survey, the euro zone economy may shrink last quarter, as indebted consumers cut back on spending in the face of rising borrowing costs and rising prices, with demand falling the most in nearly three years in September.
Meanwhile, official data showed that euro zone retail sales fell more than expected in August,Indicates weak consumer demand due to high inflation.
The Eurozone economy is at a standstill.
Judging from the breakdown of member states, the situation is not optimistic. Although Germany's service sector activity picked up slightly in September, economic performance remained weak due to continued drag on manufacturing activity.
Germany September Markit services PMI final value of 50.3, slightly higher than the expected 49.8; but Germany September Markit composite PMI final value of 46.4, still below the line.
In addition, although French service industry activity rebounded slightly, it contracted slightly for the second consecutive month, and the manufacturing industry shrank at the fastest rate in the past three years. As the decline in new orders and export business put pressure on the second largest economy in the euro zone, The overall economy is still below the expansion level.
Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, commented on the final value of the euro zone's September service PMI, saying that people may see some signs of recovery, given the rise in the HCOB euro zone's service PMI index in September. But not so fast.
First, the index is still in contraction territory.Even in Germany and Spain, where the index rose above 50, the recovery occurred only slightly, suggesting that the economies of these parts of the euro zone are more stagnant.
Then there is France, the euro zone's second-largest economy, where business activity is not only declining, but plummeting, suggesting a deeper recession.The Eurozone's HCOB composite PMI index did rebound. However, we cannot jump on the train of hope yet.
The root cause of this phenomenon is the problem of Europe's growth engine. There are 19 countries in the euro zone, but from the average of the past 10 years, Germany's contribution to the GDP of the whole region has reached 29%, which makes Germany enjoy the reputation of "European economic locomotive.
However, this locomotive has played a drag on the economy of the entire euro zone in Q4 in 22 years, and has experienced two consecutive "technical recessions with negative quarter-on-quarter growth. Germany's manufacturing PMI has fallen below 40.
Weak consumer demand
A few days ago, according to a survey, as in August, the output of the service and manufacturing industries in the euro zone fell in September, and the scope of the economic downturn was very wide.
Official data show that retail sales in the euro zone fell 1.2 per cent month-on-month in August (expected to fall 0.3 per cent), compared with a 0.2 per cent decline in the previous value. Eurozone retail sales fell 2.1 per cent year-on-year in August (expected to fall 1.2 per cent), with the previous value down 1 per cent.
In response, Franziska Palmas, a macro economist at Capital Investment, said: "the decline in retail sales in August and the weak final value of the purchasing managers' index in September are consistent with our view that the euro zone economy will fall into recession in the second half of 2023."
In the UK, the UK September composite PMI 48.5, is expected to 46.8, the previous value of 46.8. UK September service industry PMI 49.3, expected to 47.2, the previous value of 47.2.
Tim Moore, director of global intelligence economics at S & P, commented on the UK service industry, saying that in September, service industry activity remained negative as cuts in non-essential business and consumer spending dragged down sales.
Survey respondents often say that the combination of rising borrowing costs and sluggish economic conditions has led to a decline in the number of new businesses. Another decline in export sales also took a toll on book orders in September, mainly due to weak demand across Europe.
It will take time to curb inflation
However, inflationary pressures in the euro area may have eased. Data released by Eurostat on Wednesday showed that the month-on-month increase in producer prices (PPI) in the euro zone rose slightly as expected in August, but fell sharply year-on-year due to a sharp drop in energy prices.
Eurozone PPI rose 0.6 per cent month-on-month in August, but fell 11.5 per cent from a year earlier, in line with economists' expectations.
On a month-on-month basis, intermediate goods fell 0.4 per cent month-on-month, pulling down the index, but energy prices rose 2.5 per cent, pushing up the overall final figure.
On a year-on-year basis, energy prices fell 30.6 per cent and intermediate prices fell 4.5 per cent, offsetting the impact of higher prices of capital, consumer durables and non-durable consumer goods.
The rise in the euro zone's producer price index (PPI) in August was largely due to higher energy prices brought on by soaring oil prices. If this factor is removed, producer prices for industry as a whole actually fell by 0.2 per cent.
European Central Bank Deputy Governor De Guindos said in Cyprus on October 4 local time that although inflation in the euro zone continues to decline, it will remain at a high level for a long time, and it will take time to curb inflation.
Moreover, de guindos warned that the negative impact of the monetary policy tightening of the European Central Bank is still penetrating into the real economy, and the real estate market has slowed down, but the euro zone has not yet fully felt the impact of interest rate hikes. It is expected that most of the impact of tightening monetary policy on the real economy will appear in the future.
In general, although economic activity in Europe has picked up slightly, it is still in the contraction range, and with the inflation problem still unresolved, the European Central Bank and the Bank of England seem determined to choose to maintain restrictive policies,The outlook for Europe's economy remains bleak as demand continues to be squeezed by inflation and high interest rates.
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