Decline in Business Activity in the Eurozone Largest Since February Last Year

The results of months-long turbulence in supply chains have resulted in a decline in business activity in the eurozone for the first time since February 2021. No company is interested in ceasing operations, but the future is uncertain – costs are rising, orders are falling, and new challenges are encountered every day.

The result of the S&P Global 'flash' composite Purchasing Managers’ Index for the eurozone is the latest cause for concern across the bloc and confirms economists’ predictions that a recession is inevitable, reported the Financial Times.

The composite PMI indicator which measures activity in service and manufacturing companies across the eurozone fell in July to its lowest level in 17 months – from 52 in June to the current 49.4. Reuters surveyed economists who seemed optimistic, expecting a reading of 51 percent despite supply chain disruptions. 

This is the first time the index has fallen below the key threshold of 50 that separates growth from contraction since February 2021, when businesses struggled with Covid-19. The euro fell after the report, specifically by 0.7 percent against the US dollar to 1.015. 

Yields on German ten-year bonds also fell by 15 basis points, the lowest level since May due to justified expectations that the ECB will soon be forced to stop raising rates as recession knocks on the door. Yields, however, move inversely to prices. 

The PMI result for the eurozone manufacturing sector also fell more than expected – to 49.6 percent, while the reading for the larger part of the service sector showed that it managed to maintain weak growth with a reading of 50.6 percent. 

– It seems that the eurozone economy will shrink in the third quarter as business activity began to decline in July, and indicators related to the future point to an even worse situation in the coming months, said Chris Williamson, chief economist at S&P Global Market Intelligence, to the Financial Times.