Euro Zone Business Activity Decline Continues in November, Deepening Recession Concerns

Key Points:

1. Euro Zone business activity continues to decline in November 2023, indicating a potential economic contraction.

2. The composite Purchasing Managers' Index (PMI) suggests the possibility of a second consecutive quarter of shrinking GDP.

The Euro Zone business activity experienced another downturn in November 2023, raising concerns of a looming recession. According to the latest data, this downturn, although easing, suggests the Euro Zone's economy is likely to contract again this quarter. Consumers are increasingly cautious with their spending, which is a significant factor contributing to this economic trend. In the last quarter, the economy showed a contraction of 0.1%, and current indicators predict a similar pattern for the fourth quarter of 2023.

The PMI, a critical indicator of economic health, compiled by S&P Global, rose marginally to 47.1 in November from October's near three-year low of 46.5. However, it remains below the 50 mark, which distinguishes between economic growth and contraction. This situation is more pronounced in the manufacturing sector, which has been contracting since July 2022, and continued to do so in November. Although there is a slight improvement in the services sector, overall business activity is not showing signs of recovery.

Germany, Europe's largest economy, exhibited signs of a less severe downturn, offering a glimmer of hope. However, France, the second-biggest economy in the Euro Zone, faced a more significant contraction than anticipated. The UK, though not part of the Euro Zone, reported marginal growth after months of contraction, yet struggles with order downturns due to higher interest rates and weak demand.

Employment conditions in the Euro Zone also reflect the economic challenges, with firms cutting headcount for the first time since January 2021. This change in employment is linked to the continuous quarters of negative growth. Inflation, while on a downward trend, still poses challenges, with input cost pressures remaining and selling price inflation slightly increasing in November. These factors collectively suggest that the Euro Zone might be in a shallow technical recession, with a weakening labor market and ongoing economic difficulties.

References

1. https://www.933thedrive.com/2023/11/23/euro-zone-business-activity-fell-again-in-nov-stoking-recession-fears-pmi/
2. https://think.ing.com/snaps/eurozone-is-likely-in-a-shallow-technical-recession/