The eurozone is affected by the manufacturing and services sectors’ poor performance.
Britain’s policymakers have been warned to prepare for a recession after a carefully watched indicator of economic health revealed that the UK is experiencing a general decline in business activity across all of Europe.
The latest monthly company health checks revealed deterioration in the United Kingdom’s services and industrial sectors and the worst economic performance since the Covid shutdown in early 2021, which is a hint that rising interest rates are causing a sharp slowdown in GDP and strangling inflation.
The eurozone’s issues parallel those in Britain, where activity has fallen to its lowest point since November 2020. The decline in demand for its produced goods is particularly hurting Germany, the largest economy in the single currency.
Even if the US economy has so far outperformed that of Europe, it is beginning to feel the strain. In August, activity came to almost a standstill and reached its lowest point in six months.
A number of studies of purchasing managers, regarded as a reliable indicator of future economic trends, raised the red flags for impending issues. The cutoff for growth and contraction in the surveys is 50.
S&P Dow Jones and the Chartered Association of Procurement and Supply’s purchasing managers’ index (PMI) for the UK decreased down 50.8 in Jul to 47.9 in Aug. While manufacturing PMI decreased from 45.3 to 42.5, service sector activity decreased from 51.5 to 48.7.
The head of Capital Economics’ global research, Jennifer McKeown, stated: “August’s flash PMIs reinforce our assessment that both the eurozone & UK will enter depression throughout the third quarter of this year and suggest that the US is currently barely growing.
Furthermore, polls “strongly indicate that we’re at or near the peak in tightening monetary cycles,” with prices for output still progressively easing.
“The earlier PMI survey for the month of August suggests that inflation could decrease additionally in the months ahead, but it also shows that the battle against price increases comes with a significant price tag in terms of elevated recession risks,” said Chris Williamson, the top business economists at S&P world market intelligence.
As a more acute manufacturing downturn is coupled by a further stalling of the service sector’s spring comeback, a fresh contraction of the GDP already appears probable. According to the poll, GDP has decreased by 0.2% so far in the third quarter.
Williamson claimed that businesses were suffering the effects of the rising cost of living in Britain, a decline in export demand, increased borrowing rates, and concerns about the future of the economy.The power of businesses to raise prices was being restrained, and inflation was expected to decrease to 4% from 6.8% in the coming months.
According to Hamburg Commercial Bank’s (HCB) PMI for the eurozone, total business activity declined down 48.6 during July to 47.0 in August. Although the manufacturing PMI slightly increased from 42.7 to 43.7, the services PMI decreased from 50.9 to 48.3.
The head economist at HCB, Cyrus de la Rubia, stated: “Unfortunately, the eurozone’s service sector is beginning to show indications that it is turning down to match the weak performance of manufacturing.
“In reality, service firms reported declining productivity for the very first time at the conclusion of the previous year, while manufacturing output fell once more.
According to our GDP nowcast, taking into account the PMI results, the eurozone will contract by 0.2% in its third quarter.