Decline in manufacturing activity in the eurozone continues due to record inflation

Manufacturing activity in the eurozone has fallen to its lowest level since the initial lockdowns due to Covid-19 in 2020, as record inflation and a weakening global economy reduce demand for goods, Bloomberg reported.

All major economies in the currency bloc, except for Ireland, recorded a deepening decline in October, according to purchasing manager surveys from S&P Global published on Wednesday. Spain was hit the hardest, followed closely by Germany, which is among the most exposed to Russia’s reduction in energy supply.

Data ‘now clearly signals that the manufacturing economy is in recession,’ said S&P Global economist Joe Hayes in a statement.

– Factors likely to worsen the decline include inflation, which remains stubbornly high despite ongoing evidence that supply chain pressures are easing – he added.

This week’s surveys in Asia showed a slowdown in factory activity there, providing further evidence that the global economy is cooling. The 19-member euro area is expected to slip into recession due to rising energy prices and uncertainty fueled by the Russian war in Ukraine, even after remaining surprisingly resilient in the three months to September.

Highest inflation since the introduction of the euro

Recall that annual inflation in the eurozone accelerated again in October, reaching 10.7 percent, a new high since the introduction of the euro, according to estimates from Eurostat released on Monday, reflecting the accelerated rise in energy and food prices. In September, annual inflation measured by the harmonized index of consumer prices (HICP) in the 19 countries sharing the common European currency was 9.9 percent, according to the statistical office’s tables.

The annual rise in consumer prices thus reached a new high since the introduction of the common European currency in 1999. Eurostat has been calculating inflation since 1996. Compared to September, consumer prices in the month just ended increased on average by 1.5 percent, slightly accelerating on a monthly basis, according to Eurostat’s table.

In October, energy again provided the greatest support for price growth, rising by 41.9 percent compared to the same month last year, and by 6.5 percent compared to the previous month.

The highest inflation rates were again recorded in the Baltic states, led by Estonia, where it reached 22.4 percent. In Lithuania and Latvia, prices rose by 22 and 21.8 percent, respectively. A total of 11 countries are recording double-digit inflation rates, according to Eurostat’s estimates.

Among the countries with price growth in the range of 10 to 20 percent, the highest inflation rates were again recorded in the Netherlands and Slovakia, at 16.8 and 14.5 percent, respectively. In Germany and Italy, the largest and third-largest European economies and important Croatian trading partners, prices rose by 11.6 and 12.8 percent, respectively.

Among other important trading partners, neighboring Slovenia recorded an inflation rate of 10.3 percent.

The lowest annual inflation rate in October was recorded in France, the second-largest economy in the eurozone, where it was 7.1 percent, according to preliminary estimates from Eurostat. On a monthly basis, prices fell in only three countries: in Estonia by 1.6 percent, in Greece by one percent, and in Malta by 0.6 percent. Prices rose the most in Italy, by four percent, according to Eurostat’s tables.