Euro zone business activity contracted at the fastest pace in nearly two years in October as the cost-of-living crisis kept consumers cautious and sapped demand, according to a survey that added to evidence the bloc is entering a recession.
Factories have been particularly hard hit by energy price rises and due to supply chains still recovering from the coronavirus pandemic taking a hit from Russia's invasion of Ukraine.
S&P Global's flash Composite Purchasing Managers' Index (PMI), seen as a good guide to overall economic health, fell to 47.1 from 48.1 in September, below expectations for 47.5 in a Reuters poll.
October was the fourth month below the 50 mark separating growth from contraction and was the lowest reading since November 2020.
"The euro zone economy looks set to contract in the fourth quarter given the steepening loss of output and deteriorating demand picture seen in October, adding to speculation that a recession is looking increasingly inevitable," said Chris Williamson, chief business economist at S&P Global. Energy costs push Germany flash PMI to 29-month low - S&P Global "Demand is falling sharply and companies are increasingly growing worried over high inventories and weaker than expected sales, especially as winter approaches. The risks are therefore tilted towards the downturn accelerating towards the year-end."
Inflation was a record 9.9% in September, data showed last week, and with prices rising sharply, demand weakened considerably. The composite new business index dropped to a near two-year low of 45.0 from 46.3. To try and combat inflation running at nearly five times its target, the European Central Bank has begun raising interest rates and is expected to do so by another 75 basis points on Thursday, depleting the spending power of indebted consumers.
A PMI covering the bloc's dominant services industry dropped to 48.2 from September's 48.8, in line with the Reuters poll but the lowest point in 20 months.
Suggesting inflation won't fall significantly anytime soon, both the services input and output prices indexes were close to record highs. The input prices one nudged up to 77.5 from 77.4.
The manufacturing PMI fell to 46.6 from 48.4, its lowest since May 2020 and below all forecasts in the Reuters poll, which had predicted 47.8. An index measuring output, which feeds into the composite PMI, sank to 44.2 from 46.3.
