Bad News For The Eurozone Again This Month

Bad News For The Eurozone Again This Month
Theodora Lee Joseph, CFA

2 months ago2 mins

What’s going on here?

Activity in the eurozone’s private sector declined in September, signaling that the region’s economy is shrinking this quarter.

What does this mean?

The eurozone’s purchasing managers' index (PMI) just came out, which is essentially a report card showing how companies in Europe are doing. Well, this one was far from an A+: activity in the region slipped for the fourth month in a row, falling below the 50-mark that signals real trouble. Business was bad for both the manufacturing and services industries, signposting faltering demand across the board as rising prices continue to bite. What’s more, it was Germany – usually the eurozone’s workhorse – and France that really dragged down the average.

Eurozone PMI

Why should I care?

For markets: What goes up might need to come down.

Most of the world’s central banks have temporarily paused their interest rate-hiking campaigns, concerned that an overly aggressive strategy could pull economies into recessions. And because this data is a worrying indicator for Europe’s economy, it suggests that the European Central Bank may need to hold off hikes for longer or even cut rates down a tad. Earlier this year, the central bank predicted that the region’s economy would manage to grow a tiny – but needed – 0.1% this quarter, but that’s no guarantee. No wonder, then, that the market’s already betting on economy-buoying lower rates.

The bigger picture: You can’t escape that easily.

The UK isn’t included in those European stats, but the country’s pain is just the same. The British version of that index dropped slightly in September from the month before, staying below that dreaded 50-mark. Plus, the country’s companies are slicing jobs at the fastest rate in over a decade. Taken together, that probably reveals that the UK’s interest rate hikes have started gnawing at the economy, and that explains why the Bank of England decided to keep interest rates steady at 5.25% on Thursday.



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