Euro Area: Business activity contracts at a softer pace in November

Euro Area PMI November 2022

Euro Area: Business activity contracts at a softer pace in November

The flash Eurozone Composite Purchasing Managers Index (PMI) rose to 47.8 in November from 47.3 in October, which marked the worst reading in almost two years. However, the index remained entrenched below the 50 no-change threshold, signaling another contraction in business conditions compared to the prior month.

Novembers increase was led by a less pronounced contraction in manufacturing sector activity. New orders fell at a softer rate. Moreover, business confidence ticked up, although it remained subdued by historical standards. On the price front, both input and output inflation fell, thanks to easing supply constraints and reduced demand. That said, both remained elevated.

Commenting on the release, Chris Williamson, chief business economist at S&P Global Market Intelligence, stated:

“Its clear that manufacturing remains in a worryingly severe downturn, and service sector activity is also still under intense pressure, both largely as a result of the cost of living crisis and recent tightening of financial conditions. A recession therefore looks likely, though the latest data provide hope that the scale of the downturn may not be as severe as previously feared.”

Meanwhile, Bert Colijn, senior economist at ING, said:

“The upside to the clearly recessionary environment is that inflationary pressures are fading. Weaker demand, lower energy prices than in August and easing supply-side problems are all contributing to a softening of price pressures. While energy prices remain volatile and businesses are likely to still price through some of the higher costs incurred, these factors do point to a turning point in the inflation rate around the turn of the year.”

FocusEconomics Consensus Forecast panelists expect fixed investment to expand 3.6% in 2023, which is unchanged from last months forecast. For 2024, panelists see fixed investment increasing 3.1%.

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