Eurozone Economic Activity Reduces First Time Since Early 2021

According to Bloomberg, for the first time since the pandemic lockdown of early 2021, private sector activity in the eurozone has unexpectedly declined.

“A sharp loss of new orders, job losses and worse business expectations all point to a pace of decline gathering further momentum.” “The biggest concern is the dire manufacturing situation, with manufacturers reporting that weaker-than-expected sales have led to an unprecedented increase in unsold inventories,” noted Chris Williamson, economist at S&P Global.

The data underscores the vulnerability of the eurozone economy, which is now being hit hard by the European Central Bank’s half-point interest rate hike, the first increase in more than a decade. Signs of reducing growth will reinforce the view of economists who predict a recession later this year.

ECB President Christine Lagarde said on Thursday that it was important to avoid expectations of higher prices, although she acknowledged that the economy is weakening. Professionals polled by the ECB earlier this month shortened their growth outlook for next year to 1.5% from 2.3%, according to a quarterly report released on Friday. They also raised their long-term inflation estimate to 2.2%.

Companies are devaluing their outlook, limiting acquisitions and halting hiring, according to the Friday’s report. Williamson predicted that production is likely to decline as companies adjust to the weak demand environment.

“The ECB raises interest rates when the demand environment is weak, in which case higher borrowing costs will inevitably increase recession risks,” he concluded.