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Euro zone business activity suffered an unexpected and sharp downturn in November, as the region’s services sector joined manufacturing in contraction. HCOB’s composite Purchasing Managers’ Index (PMI) for the euro zone, compiled by S&P Global, plummeted to a 10-month low of 48.1, well below the 50 threshold that delineates expansion from contraction.
This reading, far below October’s 50.0 and the Reuters poll forecast of no change, underscores the mounting challenges facing the euro zone economy.
Key PMI Insights
- Services Sector Slump
- The PMI for services fell to 49.2 from 51.6, a 10-month low, contrary to expectations of stability.
- This marks a significant reversal for a sector that had been propping up the euro zone economy with modest growth.
- Deepening Manufacturing Recession
- The manufacturing PMI slid further to 45.2 from 46.0, missing expectations for no change.
- Manufacturing output contracted more sharply, with its index falling to 45.1 from 45.8, even as factories lowered their charges for the third consecutive month.
- Weak Demand and Outlook
- New business activity fell to its lowest level in 2023, with the new business index at 46.6 compared to October’s 47.9.
- Firms remain cautious about the future, as the business expectations index declined to 55.0, the lowest in two years.
Implications for Monetary Policy
This contraction is likely to bolster expectations of another rate cut by the European Central Bank (ECB) in December. The ECB has already reduced rates three times this year, bringing the deposit rate to 3.25%, as it grapples with weak economic growth across the bloc.
The euro zone’s economic prospects appear increasingly precarious, with recessionary pressures in manufacturing now spreading to the services sector. Policymakers face the dual challenge of stimulating growth while addressing structural issues within the bloc, as businesses signal reduced confidence in the months ahead.
