The European Central Bank faces the prospect of aggressively raising interest rates as the economy enters recession
The European Central Bank faces the prospect of aggressively raising interest rates as the economy enters recession
The eurozone is almost certainly entering a recession, with Monday’s polls showing a deepening cost-of-life crisis and a gloomy outlook that is making consumers wary of spending.
While there was some easing of price pressure, according to surveys, they remained high and the European Central Bank is under pressure as inflation continues to run more than four times its 2% target, reaching a record 9.1% last month .
It faces the prospect of aggressively raising interest rates such as Economy enters recession.
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Increase in cost of borrowing will add to the woes of indebted consumers, yet Reuters Nearly half of economists polled last week said they expect an unprecedented 75 basis-point growth from the ECB this week, compared with nearly 50 bps forecasting growth.
Despite those expectations, the euro fell below 99 US cents on Monday for the first time in 20 years, when Russia said gas supplies down its main pipeline in Europe would remain closed indefinitely.
Gas prices on the continent rose 30% on Monday, sparking fears of shortages and reinforcing expectations for a recession and a bitter winter as businesses and homes suffer from skyrocketing energy prices.
S&P Global’s final composite Purchasing Managers’ Index (PMI), which is seen as a guide to economic health, fell to an 18-month low of 48.9 in August, down from July’s 49.9, lower than the initial 49.2 estimate. was less than Anything below 50 indicates contraction.
“PMI surveys indicate the euro area is entering recession earlier than ever, led by Germany, its largest economy, and we now see the euro area enjoying a ‘long, three-quarter recession’, said Peter Shafrick at the Royal Bank of Canada.
“The revision is primarily due to growth in energy prices, which have remained elevated even after a recent retreat and which means the impact on household spending will be greater than we anticipated.”
Another survey showed that the prospect of a recession demoralized investors in the currency union and it fell in September to its lowest level since May 2020.
Services activity in Germany, Europe’s largest economy, contracted for a second month in August as domestic demand came under pressure from rising inflation and weak confidence, earlier data showed.
Its economy is on a contracting path for three consecutive quarters starting from this one, a Reuters The survey suggested last week.
In France, the euro zone’s second-largest economy, the services sector lost much steam and only managed to achieve modest growth with procurement managers saying the outlook was bleak.
The Italian services industry returned to modest growth but activity in Spain expanded at the slowest rate since January, with companies concerned that inflation would weigh on their profits and customer demand.
In the UK, the economy ended at a much weaker level in August as overall business activity contracted for the first time since February 2021 in a clear sign of recession, its PMI showed.
In Asia, surveys showed a strong rebound in China’s services sector eased slightly amid a fresh COVID-19 flare-up, while in Japan the sector contracted for the first time in five months.
Although, IndiaThe core services industry grew faster than expected last month, driven by solid expansion in demand and continued easing of cost pressures.