Euro Area: Business activity contracts at sharper pace in September

Euro Area PMI September 2022

Euro Area: Business activity contracts at sharper pace in September

The flash Eurozone Composite Purchasing Managers’ Index (PMI) fell to 48.2 in September from 48.9 in August, marking the worst reading since January 2021, when much of the region was in lockdown due to Covid-19. Moreover, the index moved further below the 50 no-change threshold, signaling a sharper contraction in business conditions compared to the prior month.

September’s decrease was led by contracting services sector activity and a sharper decline in manufacturing sector activity. New orders fell for the third consecutive month and did so at an accelerating pace. Moreover, backlogs of work fell as capacity outstripped demand growth. Meanwhile, the speed of hiring matched August’s reading, which had marked the softest rate since March 2021. On top of this, business sentiment tanked to the lowest level since May 2020. On the price front, both input and output inflation intensified; substantial energy price increases outweighed the impact of easing raw material shortages.

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

“Eurozone recession is on the cards as companies report worsening business conditions and intensifying price pressures linked to soaring energy costs. […] The challenge facing policymakers of taming inflation while avoiding a hard landing for the economy is therefore becoming increasingly difficult.”

Commenting on the release, Bert Colijn, senior economist at ING, stated:

“The third decline in a row for the eurozone PMI indicates that business activity has been contracting throughout the quarter. This confirms our view that a recession could have already started. At the same time, the August increase in energy prices is translating into stronger price pressures.”

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