Euro zone August downturn deeper than was thought -PMIs

Waitresses attend to customers at the terrace of a bar in Ronda, southern Spain, July 27, 2023. REUTERS/Jon Nazca

LONDON  – The decline in euro zone business activity accelerated faster than initially thought last month as the bloc’s dominant services industry fell into contraction, according to a survey which suggests the bloc could drop into recession.

HCOB’s final Composite Purchasing Managers’ Index (PMI), compiled by S&P Global and seen as a good barometer of overall economic health, dropped to 46.7 in August from July’s 48.6, a low not seen since November 2020.

That was below the 50 mark separating growth from contraction for a third month and shy of a preliminary estimate for 47.

“The euro zone didn’t slip into recession in the first part of the year, but the second half will present a greater challenge,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.

“The disappointing numbers contributed to a downward revision of our GDP ‘nowcast’ which stands now at -0.1 percent for the third quarter.”

The headline services PMI sank to 47.9 from 50.9, below the flash 48.3 estimate, as indebted consumers feeling the pinch from increased borrowing fees and high living costs reined in spending.

The new business index, a gauge of demand, dropped further below breakeven to 46.7 from 48.2, a low not seen since early 2021.

Still, the downturn in manufacturing eased last month, suggesting the worst may be over for the bloc’s beleaguered factories, a sister survey showed on Friday.

Indicating firms were not expecting an imminent turnaround they barely increased headcount last month. The composite employment index dropped to 50.2 from 51.4.

“Employers weren’t too keen on beefing up their teams. The way things have been going down lately, it’s a sign they’ll be moving towards job cuts sooner, not later,” added de la Rubia.