Euro indexation

07 November 2023

Dear clients,

The slump in eurozone business activity accelerated last month as demand in the dominant services sector weakened further, a survey showed on Monday, signalling a growing likelihood of recession in the 20-nation currency union.

Official data showed the economy shrank 0.1% in the third quarter, while the final composite purchasing managers' index (PMI) for October released on Monday indicated the bloc is entering the final quarter of 2023 with negative momentum.

The PMI, compiled by S&P Global and considered a good indicator of the overall health of the economy, fell to 46.5 in October from September's reading of 47.2, the lowest since November 2020, when COVID-19 restrictions were tightened across much of the continent.

The figure was below the 50 mark, which separates growth from contraction, for the fifth consecutive month and matched the preliminary estimate.

Manufacturing activity fell further in October, according to a related survey released last week, which showed that new orders fell at the sharpest rate since data collection began in 1997.

A similar picture was seen in the services sector, with the business activity index, a gauge of demand, at its lowest since the start of 2021 as indebted consumers, feeling the pressure of rising prices and higher borrowing costs, kept their hands in their pockets.

Service sector activity in Germany, Europe's largest economy, contracted again in October amid continued weakness in demand, while it fell again in France.

The decline in service sector activity in Italy continued for the third consecutive month and at the fastest pace of the year, but Spain bucked the trend and its service sector grew slightly faster last month.

In another positive development, investor sentiment in the eurozone rose more than expected in early November and expectations for the future were the most optimistic since the start of this year, the Sentix index showed on Monday.

The European Central Bank left interest rates unchanged at a record high last month, ending an unprecedented streak of 10 consecutive rate hikes, but insisted that growing market talk of rate cuts was premature.

Policymakers, who are failing to meet their inflation target, are likely to take for granted the easing of price pressures shown in the PMI survey as input and output price indices declined from September's reading.

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