The ECB faces the prospect of aggressively raising interest rates just as the economy enters a recession.
Rising borrowing costs would exacerbate the problems of indebted consumers, but in a Reuters poll last week nearly half of economists surveyed said they expected an unprecedented 75 basis point rate hike from the ECB. this week, while nearly as many expect a 50 basis point hike.
Despite these expectations, The euro fell below 99 cents on the dollar for the first time in 20 years on Monday, after Russia said gas supplies through its main pipeline to Europe would remain closed indefinitely..
Gas prices on the mainland soared 30% on Monday, stoking fears of shortages and reinforcing expectations of a recession and a difficult winter as businesses and households take a hit from high energy prices. .
S&P Global’s final composite Purchasing Managers’ Index (PMI), seen as a guide to economic health, fell to an 18-month low of 48.9 in August from 49.9 in July, below an estimate. preliminary of 49.2. Anything below 50 indicates shrinkage.
“PMI surveys signal that the eurozone is entering a recession sooner than we thought, led by its largest economy, Germany, and we now see the eurozone ‘enjoying’ a longer three-quarter recessionsaid Peter Schaffrik of the Royal Bank of Canada.
“The revision is mainly due to the evolution of energy prices, which, even after falling in recent days, remain high and mean that the impact on household spending will be greater than we had anticipated until now” .
That recessionary outlook hit investor confidence in the currency union, plummeting in September to its lowest level since May 2020.according to another survey.
The recession, country by country
Services activity in Germany, Europe’s largest economy, contracted for the second consecutive month in August as domestic demand came under pressure from rising inflation and weakening confidence, previous data showed. Its economy is on track to contract for three straight quarters from this, a Reuters poll suggested last week.
In France, the euro zone’s second-largest economy, the services sector lost more steam and achieved only modest growth, with purchasing managers saying the outlook was bleak.
In Italy, the services sector returned to modest growth, but in Spain activity expanded at the slowest pace since January as companies fear inflation will hit profits and customer demand.
In the UK, the economy ended August on a much weaker footing than previously thought, as overall business activity contracted for the first time since February 2021, in a clear sign of a recession, its PMI showed. [GB/PMIS]
On Monday, the country will learn who will be its next prime minister, charged with trying to manage an economy facing a long recession along with runaway inflation and industrial upheaval.
In Asia, surveys showed that the strong rebound in China’s services sector faded slightly amid fresh outbreaks of COVID-19, while in Japan the sector shrank for the first time in five months.
However, India’s dominant services sector grew faster than expected last month on the back of strong demand expansion and continued easing of cost pressures.
Source: Ambito
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