A eurozone recession is almost for certain with data from recent surveys indicating a further decline to the cost of living crisis as well as a bleak outlook that has consumers hesitant to spend.
According to Reuters, data from surveys in early September revealed that despite some easing, price pressures are still high while the European Central Bank is currently under pressure after inflation had reached a record 9.1%, more than the targetted 2%.
Furthermore, the central bank faces prospects of aggressively hiking interest rates when the economic decline occurs.
An increase in borrowing costs would add more concerns to indebted consumers. However, based on a recent Reuters poll, nearly half the economists who were surveyed are forecasting an unprecedented rate increase of 75 basis points from the central bank in week two of September, while nearly as many are expecting the rate to increase by 50 basis points.
Despite forecasts, the euro fell below 99 US cents on Sept 5, the first time in 20 years, after Russia indicated its main gas pipeline to Europe will remain shut indefinitely.
On the same day, gas prices on the continent surged by 30%, sparking fears of shortages and confirming projections of a eurozone recession as well as a bitter winter for the businesses and households who face soaring energy prices.
S&P Global’s final composite purchasing managers’ index (PMI) dipped to 48.9 in August from 49.9 in July, below a preliminary 49.2 prediction. The PMI is seen as a guide to economic health where indices below 50 would mean economic contraction.
Peter Schaffrik from the Royal Bank of Canada stated that the PMI surveys are indicating that the eurozone recession is occurring earlier than they had originally predicted.
He said that the continent is experiencing a longer three-quarter recession, led by Germany.
“The revision is mainly due to rising energy prices, which, notwithstanding recent declines, will have a bigger impact on household expenditure than expected,” he added.
Based on results from another survey, the likelihood of a eurozone recession had sunk investor morale in the euro and it dipped further this month to its lowest since May of 2020.
A Reuters survey earlier in the month showed Germany’s GDP is expected to decline for three straight quarters starting this one after earlier figures showing the country’s services activity contracting for its second consecutive month.
As for France, the services sector lost steam and only managed a small growth; purchasing managers were pessimistic of its outlook.
In Italy, its services industry showed a modest growth but Spain, on the other hand, had the slowest expansion since January, with companies worried that inflation will weigh on profitability and client demands.
Britain’s GDP in August finished substantially weaker than anticipated as economic activity declined for the first time since February of last year, signalling recession.
Liz Truss, who has just been named prime minister of Britain, will now be managing an economy that will face a long recession, high inflation, as well as industrial unrest.
Meanwhile, in Asia, surveys have demonstrated that China’s services sector has rebounded modestly amid additional COVID-19 outbreaks, while Japan’s contracted for the first time in five months.
In India, the country’s dominant services industry grew faster than predicted due to strong demand and easing cost concerns.
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Read more: Global real GDP to remain sluggish until 2024 – S&P Global
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