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Eurozone business activity has taken quite a hit this November, which, it seems, might entice the European Central Bank to consider trimming interest rates come next month. Yet again, we find the Hamburg Commercial Bank’s composite Eurozone purchasing managers’ index stumbling to a rather dismal 10-month low of 48.1 points. This is a touch below the 50-point threshold, signifying contraction rather than growth. Previously, most analysts had not anticipated any change from the prior 50-point mark.
Such unexpected sluggishness caught the attention of investors, making a more generous rate cut at the ECB’s meeting, slated for December 12, seem increasingly probable. The chance of a half-point reduction in rates has almost doubled to about 55 percent, as implied by swaps market figures.
The effects of this data ripple across various economic parameters. The euro, for instance, felt the brunt, plunging more than 1 percent against the dollar to touch $1.033. This marked its weakest level since the energy crisis Europe encountered late in 2022, only to recover slightly back to $1.040.
As the winds blow through the Eurozone’s economic terrain, they bring with them concerns about waning manufacturing and services sectors. Manufacturing is sinking deeper into a recessionary phase, while the services sector hasn’t fared much better, tipping over into negative territory itself. Activity in the service sector hit a 10-month low, notching up worries.
Cyrus de la Rubia, chief economist at HCOB, observed, “The Eurozone’s manufacturing sector is sinking deeper into recession, and now the services sector is starting to struggle after two months of marginal growth.” One could say that the PMI survey, often regarded as a reliable barometer of the Eurozone’s economic tempo, provides policymakers with crucial insights to ponder. There’s been mounting concern within the ECB about sluggish growth and inflation that’s dropping faster than anticipated.
Earlier, in October, the ECB shaved borrowing costs by a quarter of a percentage point for the second consecutive month, bringing rates down to 3.25 percent. It’s a trend, it seems, that many thought would carry on with more quarter-point cuts over at least the next four scheduled meetings.
In Germany, the economic tempests are not gentler. Destatis, the national statistics office, halved its growth forecast to a mere 0.1 percent for the third quarter. Back in the second quarter, GDP had already slipped by 0.3 percent. Foreign trade’s chilling winds have turned into a gnawing drag on output. Exports fell by 1.9 percent, while imports nudged up 0.2 percent. A separate release in October highlighted the continuation of this trend, with exports to non-EU countries plummeting by 6.9 percent.
Andreas Scheuerle of Deka Bank remarked on the peculiarly toxic blend of cyclical and structural bumps that seem to be marring Germany’s economic landscape.
In Christophe Boucher’s view, presented to his clients, perhaps even the international stage plays a role, especially with potential ripple effects courtesy of US president-elect Donald Trump’s tariff policies. The outlook, he suggests, remains rather bleak.
Ralph Solveen, economist at Commerzbank, chimed in with observations on November’s data spell. "It’s a palpable setback for recovery hopes in the Eurozone," he wrote to clients, pondering stagnation for the tail-end of this year and early 2025.
Amidst the ebb and flow of such economic tides, it’s crucial to remain engaged and informed. In times like these, knowledge and information become invaluable assets. So, keep abreast, and perhaps keep a sharp eye on those newsletters.
Additional reporting by Ian Smith in London
