Eurozone Downturn Continues Into Fifth Month, Points to Winter Recession: PMI

European Commission President Ursula von der Leyen delivers a State of the Union Address at the European Parliament in Strasbourg, France, on Sept. 15, 2021. Yves Herman/Pool via AP

Eurozone output contraction extended into the fifth month after a key index released November data, although the pace of decline eased from October, indicating some tough times ahead for the continent’s economies.

“A fifth consecutive monthly falling output signaled by the PMI [Purchasing Managers’ Index] adds to the likelihood that the eurozone is sliding into recession,” said Chris Williamson, chief business economist at S&P Global Market Intelligence, regarding the Eurozone Composite PMI data (pdf). “However, at present, the downturn remains only modest, with an easing in the overall rate of contraction in November means so far the region looks set to see GDP contract by a mere 0.2%.”

The Final Eurozone Composite Output Index registered at 47.8 for November, compared to October’s 47.3. The recent numbers point to the longest downturn in the eurozone economy since the recession of 2011–13, which was triggered by the region’s debt crisis. The Final Eurozone Services Business Activity Index was at 48.5, a slight decrease from October’s 48.6. Anything below 50 indicates economic contraction.

Output in manufacturing fell in November, while the services sector recorded the sharpest decline since February 2021. Subdued demand and the prevailing energy crisis were given as reasons for the economic situation in the report.

Manufacturers were seeing benefits of “improved supply chains,” and there are “signs of inflation having peaked,” said Williamson, adding that “recession may be both brief and relatively mild,” if there was no severe winter.

“That said, energy prices could spike higher amid adverse weather in the coming months, which would not only hit spending power but could threaten production capacity at energy-intensive industries, under which scenario the risks to economic growth would shift clearly to the downside.”

Retail Trade in Europe

According to the latest data (pdf) released by Eurostat, the volume of retail trade in October was down by 1.8 percent in the eurozone and by 1.7 percent in the European Union (EU) compared to September. Eurozone refers to member countries of the EU who have adopted the euro as their currency.

Retail trade was down by 2.7 percent in the eurozone and by 2.4 percent in the EU compared to October 2021.

Among member states for which data are available, the largest monthly decreases in the total retail trade volume were registered in Austria (-4.6%), Croatia (-4.0%), and Belgium (-3.3%). Increases were observed in Luxembourg (+2.6%), Cyprus, Malta, and Portugal (each +0.5%), and Spain (+0.4%).

Inflation in Europe

Twelve-month inflation for November 2022 is projected to be at 10 percent, down from the 10.6 percent in October, according to an agency news release on Nov. 22. This is the first decline in the annual inflation rate in 17 consecutive months.

“Energy is expected to have the highest annual rate in November (34.9 percent, compared with 41.5 percent in October), followed by food, alcohol, and tobacco (13.6 percent, compared with 13.1 percent in October), non-energy industrial goods (6.1 percent; stable compared with October), and services (4.2 percent, compared with 4.3 percent in October),” the release said.

The highest inflation rate for November is projected to be in Latvia, at 21.7 percent, followed by Luxembourg and Ireland at 21.4 percent, Slovakia at 15.1 percent, Italy at 12.5 percent, Germany at 11.3 percent, Netherlands at 11.2 percent, Austria at 11.1 percent, Slovenia at 10.8 percent, Belgium at 10.5 percent, and Portugal at 10.3 percent.

Despite running at high rates, inflation has yet to peak, according to ECB President Christine Lagarde. “I would like to see inflation having peaked in October, but I’m afraid that I would not go as far as that,” she told European lawmakers on Nov. 28, according to Euractiv.

Europe’s inflation was initially driven by supply constraints that emerged after the COVID-19 pandemic reopening. But now, inflation is being driven by high energy costs due to Russia’s war in Ukraine and soaring food prices due to a poor harvest.