Eurozone business activity has gone into reverse for the first time since February 2021 after companies were hit by falling orders and rising prices, fuelling economists’ expectations of a recession this year.
Fears that the 19-country single currency zone is heading for a sharp downturn were reinforced by S&P Global’s flash eurozone composite purchasing managers’ index for July, which on Friday showed output and new orders both fell for the first time since coronavirus lockdowns in early 2021.
The outlook for the eurozone has worsened in recent weeks after the European
Central Bank raised interest rates more than expected on Thursday, while Russia is squeezing natural gas supplies to Europe, Italy is in the grip of a political crisis and record inflation is eroding household spending.
The composite PMI, which measures activity at both services and manufacturing companies across the eurozone, fell to a 17-month low of 49-4, down from 52 in June. Economists polled by Reuters had expected a reading of 51.
It is the first time the index has fallen below the crucial 50 mark that separates growth from contraction since February 2021, when businesses were still grappling with Covid-19 restrictions.
The euro slipped on the report, down 0.7 percent against the US dollar to
$1.015. German 10-year bond yields also fell to 1.07 percent, their lowest since May, on growing expectations that a recession will cause the ECB to stop raising rates sooner than expected.