Struggling Eurozone Faces a Contraction --- Slowdown contrasts with still-dynamic growth in the U.S. as quarter nears end

 

"The eurozone economy slowed sharply as the third quarter draws to a close, contrasting with still-dynamic growth in the U.S., according to a series of business surveys released on Monday.

The eurozone surveys suggest there could be doubt about a soft landing from the surge in inflation that accompanied sanctions on Russia.

Policymakers at the European Central Bank had hoped to tame inflation without pushing the eurozone economy into contraction, but there are growing signs that activity has weakened over recent months as borrowing costs remain high.

Private-sector activity in the currency union shrank in September, according to S&P Global's Composite Purchasing Managers' Index, published Monday. The composite index fell below 50, the threshold between expansion and contraction, coming in at 48.9.

"After the stagnation that followed the energy price shock, the eurozone economy is now barely experiencing any recovery," said Bert Colijn, an economist at bank ING.

In the U.S., the composite index fell only slightly as robust growth in services kept wider activity ticking along. Nevertheless, the manufacturing sector booked a sharper decline than expected, and companies' confidence for the near-term future remains clouded by political uncertainty ahead of November's presidential elections, the surveys show.

The surge in energy prices that followed sanctions on Russia cut short the eurozone's recovery from the Covid-19 pandemic, but the currency area avoided a recession. However, the economy slowed in the three months through June as businesses cut back on investment in response to high borrowing costs induced by taming inflation.

Throughout the post-sanctions stall, the eurozone's job market has remained strong, with the unemployment rate at a record low. But the surveys suggested a turning point has been reached, with businesses shedding workers at the fastest rate since the end of 2020.

Weaker demand also helped cool price pressures. Businesses in the services sector, which has been a key driver of inflation in the eurozone, reported the smallest rise in input costs in 3 1/2 years, while those costs fell for manufacturers. As a result, the prices that businesses charged their customers rose at their slowest rate since the Russia-Ukraine conflict related sanctions on Russia sparked a lengthy cost-of-living crisis early in 2022.

The surveys carried few hints of a rebound in the coming months, with new orders in decline.

"Considering the rapid decline in new orders and the order backlog, it doesn't take much imagination to foresee a further weakening of the economy," said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, which commissioned the surveys.

Services activity, after being fueled in August by the Olympic Games in Paris, slowed sharply, with the index deteriorating to 50.5 from 52.9, pointing to the weakest rate of growth in seven months. France's services sector, which had a busy August, fell back into contraction.

Manufacturing activity continued to weaken across the eurozone, with little sign of a rebound for the beleaguered factory sector. Germany, long Europe's industrial powerhouse, saw a further slowdown in manufacturing, the surveys showed, with the measure of activity reaching its lowest point in a year.

This month, auto giant Volkswagen said it would consider unprecedented closures of factories in its home country in response to a bleak economic backdrop and fiercer competition from outside Europe. Weaker output and falling employment in Germany increase the risk that the eurozone's largest economy is sliding into a technical recession -- defined as two successive quarters of contraction -- warned Claus Vistesen at Pantheon Macroeconomics in a note to clients.

There were signs of fading growth elsewhere among the world's major economies, too. India recorded its slowest pace of growth so far this year, according to its own activity surveys. In the U.K., activity lost momentum both in services and manufacturing." [1]

Kubilius told you: Stop crowing about bad life in eurozone. Look, the life in Kubilius family and Landsbergis family was never so good. Rest of eurozone? Just go drawn yourself. Stop crowing.

1. World News: Struggling Eurozone Faces a Contraction --- Slowdown contrasts with still-dynamic growth in the U.S. as quarter nears end. Kirby, Joshua.  Wall Street Journal, Eastern edition; New York, N.Y.. 24 Sep 2024: A.10.