Euro zone economy started Q4 on back foot, stoking recession fears

People walk in a busy street in Paris, France, September 17, 2023. REUTERS/Gonzalo Fuentes/file photo Acquire Licensing Rights

LONDON, Nov 6 (Reuters) - The downturn in euro zone business activity accelerated last month as demand in the dominant services industry weakened further, a survey showed on Monday, suggesting there is a growing chance of a recession in the 20-country currency union.

The economy contracted 0.1% last quarter, official data has shown, and Mondays final Composite Purchasing Managers Index (PMI) for October indicated the bloc entered this quarter on the back foot.

HCOBs PMI, compiled by S&P Global and seen as a good guide of overall economic health, fell to 46.5 in October from Septembers 47.2, its lowest reading since November 2020 when COVID-19 restrictions were tightened on much of the continent.

That was below the 50 mark separating growth from contraction for a fifth consecutive month and matched a preliminary estimate.

The PMI for the services sector dropped to 47.8 from 48.7, also matching its flash estimate.

\“It looks like the service sector in the euro zone is stumbling out of the gates for this final quarter. With new business diving steeply, it is not painting a rosy picture for what is ahead,\” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.

\“GDP of the euro zone may well fall in the fourth quarter,\” he added, saying France was the blocs worst-performing major economy with Germany and Italy trailing close behind.

Manufacturing activity took a further step back in October, according to a sister survey last week which showed new orders contracted at one of the steepest rates since the data was first collected in 1997.

It was a similar picture for services and the new business index, a gauge of demand, was its lowest since early 2021 at 45.6 from 46.4 as indebted consumers feeling the pinch from price rises and increased borrowing costs kept their hands in their pockets.

Last month the European Central Bank left interest rates unchanged at record highs, ending an unprecedented streak of 10 consecutive rate hikes, but it insisted that growing market talk of rate cuts was premature.

Policymakers there, who have failed to get inflation to target, will likely take some cheer from easing price pressures shown in the PMI survey, as both the input and output prices indexes fell from their September readings.

The composite output prices index eased down to 52.0 from 52.2, its lowest reading since early 2021.