LONDON- The euro zone economy is likely contract this quarter and won’t return to growth anytime soon, a survey showed, as the dampening effect of central banks’ long campaign of interest rates rises becomes clearer.
HCOB’s flash euro zone Composite Purchasing Managers’ Index (PMI), compiled by S&P Global and seen as a good gauge of overall economic health, rose to 47.1 in September from August’s 33-month low of 46.7.
The reading was still below the 50 mark separating growth from contraction, however, and Hamburg Commercial Bank saidthe bloc’s economy would contract 0.4 percent this quarter, far worse than the flatlining predicted in a recent Reuters poll.
“A recession is becoming increasingly clear in the euro area. Unlike in the winter half-year of 2022/23, the economic weakness is not concentrated in Germany, which has suffered particularly badly from high energy prices,” said Christoph Weil at Commerzbank.
“The increase in the ECB key interest rate by 450 basis points in the meantime is slowing down the economy in all euro countries.”
Although two years of unprecedented global policy tightening may have reached a peak, major central banks have served notice they will keep interest rates as high as needed to defeat inflation.
The impact is now being clearly felt, with shrinking business activity in Germany, Europe’s largest economy, pointing to a contraction there due to a sustained decline in demand for goods and services.
Meanwhile France’s dominant services sector contracted at an even sharper pace in September, its PMI showed, as falls in demand and new orders weighed on the euro zone’s second-biggest economy.
