Storm Clouds Gather: Euro Area Economy Teeters on Recession's Edge


According to the data, business activity in the euro area fell at a faster rate than expected in August. The situation in the region's major service industry has worsened, raising concerns about a possible economic downturn.

Reliable economic barometer, the HCOB and S&P Global Composite Purchasing Managers' Index (PMI) dropped to 46.7 in August from 48.6 in July. Since November 2020, we have not seen a value this low.

It also implies that the index failed to meet the preliminary estimate of 47.0, marking the third consecutive month in which it has been below the psychological level of 50 that separates growth and decline.

According to Cyrus de la Rubia, chief economist of Hamburg Commercial Bank, while the Eurozone averted recession in the first half of the year, the second half may face even greater obstacles. He also pointed out that the underwhelming data prompted a revision of the GDP forecast, which currently rests at -0.1% for the third quarter.

The services sector has experienced a setback as well, with the PMI in this sector dropping from 50.9 to 47.9, falling beneath the initial estimates of 48.3. This can be attributed to consumers grappling with increased borrowing costs and elevated expenses.

The New Business Index, an indicator reflecting demand, declined to 46.7 from 48.2, marking its lowest point since early 2021.

Nonetheless, the survey also revealed that the decline in production decelerated last month, suggesting a potential sign that the region's factories may have weathered the worst of the challenges.

Companies harbor pessimism about the future and are cautious about expanding their workforce. The composite employment index dropped from 51.4 to 50.2. Presently, this suggests they might initiate job cuts earlier than previously anticipated.

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