EZ business activity says about recession

The level of business activity is still falling in EZ countries. This can be seen by the composite PMI index. According to S&P Global, it was 48.9 in August, and in September it dropped to 48.2, which is the lowest value within the last 20 months (an index above 50 means that activity is growing, an index below 50 signifies falling activity). The fall of the composite PMI index continues for the third month. Such a long falling was observed only during the pandemic and in 2013. In the services sector, the PMI index was 48.9, last month the index was 49.8. It’s the second month when the index is below 50. In manufacture, the index is below 50 for the fourth month. It was 48.5 this month, and the last month’s index was 49.6.

The significant index falling may be observed in Germany, where it dropped from 46.9 to 45.9. Apart from May 2020, it’s the lowest level since June 2009. However, it is worth noting that in manufacture the fall isn’t so sharp due to the supplies establishment and logistics costs’ decrease. In France, the index, on the contrary, rose from 50.2 to 51.2. This is due to the fact that the service sector was able to compensate for the drop in the index in industry. However, it’s said that the increase in the index will slow down in the third quarter. S&P notes that the increase in excess capacity is associated with a decrease in demand for goods. Due to inflation, demand is falling, and the expenses incurred by companies are increasing. The number of new employees is also falling, the August's number is the lowest in 17 months. Despite the fact that companies are preparing for the worst, the situation in the countries is different. While the German decrease is evident, France is expecting improvements.

The drop in the index is comparable to the decline in GDP in the European Union, it’s 0.1% in the third quarter. The fact that companies are preparing for the worst can be a sign for an even bigger fall in the next quarter. Thus, according to S&P, the recession in EZ countries is possible. GDP growth for the previous quarter was 0.8%, while it was 0.5% for the first quarter. Despite the European economy is heading to stagflation, according to ING Bank, the ECB won’t stop raising rates.