# Euro zone economy faces growing risk of recession, survey shows
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-09-02
Category: NEWS
Category URL: https://financedigest.com/category/news
Meta Title: Euro Zone Manufacturing Activity Declines Again, Recession
Meta Description: Euro zone manufacturing activity declined, signaling a growing risk of recession as cost of living crisis impacts consumer spending. ECB to raise rates amid
URL: https://financedigest.com/euro-zone-economy-faces-growing-risk-of-recession-survey-showshtml

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By Jonathan Cable

LONDON (Reuters) – Manufacturing activity across the euro zone declined again last month as consumers feeling the pinch from a deepening cost of living crisis cut spending, a survey showed on Thursday, providing more evidence of the growing risk of recession.

The downbeat survey comes just a week before the European Central Bank is expected to raise borrowing costs again to try and tame inflation running at 9.1% – over four times its 2% target – further hitting indebted consumers.

S&P [Global’s final manufacturing Purchasing Managers’ Index](https://www.financedigest.com/2017-global-payroll-complexity-index-reveals.html "2017 Global Payroll Complexity Index Reveals ") (PMI) dipped to 49.6 in August from July’s 49.8, below a preliminary reading of 49.7 and further below the 50 mark separating growth from contraction.

Forward looking indicators in the survey painted a gloomy picture with new orders declining, inventories of raw materials increasing again, backlogs of work being run down and stockpiles of completed [products rising](https://www.financedigest.com/oil-rises-on-saudi-oil-production-expectations.html "Oil rises on Saudi oil production expectations") at a record pace.

[“Recession challenges are growing as economies](https://www.financedigest.com/german-economy-expected-to-skirt-recession-economy-ministry-report.html "German economy expected to skirt recession – economy ministry report") continue to face drawbacks from high inflation, growing uncertainties and rising interest rates,” said Thomas Rinn, global industrial lead at Accenture.

[“Amid the current macroeconomic pressures and the increasing cost of living crisis](https://www.financedigest.com/estonias-pro-kyiv-government-faces-election-test-amid-cost-of-living-crisis.html "Estonia’s pro-Kyiv government faces election test amid cost of living crisis"), it will come as no surprise that we are expecting further loss in activity in the coming months.

Gas prices have skyrocketed following Russia’s invasion of Ukraine and are likely to rise further, having a [knock-on effect](https://www.financedigest.com/banking-turmoil-will-not-have-knock-on-effect-on-commodities-trafigura-cfo.html "Banking turmoil will not have knock-on effect on commodities -Trafigura CFO") on costs of other goods and services.

Earlier on Thursday, Fitch Ratings said a full shut-off of Russian pipeline gas to the European [Union increasingly looked a reasonable](https://www.financedigest.com/6-reasons-to-take-a-car-loan-from-a-credit-union.html "6 Reasons to Take a Car Loan From a Credit Union") assumption and a recession in the euro zone now looked likely.

While unemployment in the bloc nudged down to 6.6% in July from 6.7% in June, according to official data [earlier on Thursday and as expected](https://www.financedigest.com/portuguese-airline-tap-swings-to-profit-earlier-than-expected.html "Portuguese airline TAP swings to profit earlier than expected") in a Reuters poll, the upbeat news on the job market may not last.

The fall in the [euro zone](https://www.financedigest.com/euro-zone-consumers-more-optimistic-on-inflation-ecb-survey-shows.html "Euro zone consumers more optimistic on inflation, ECB survey shows") unemployment rate in July to a record low of 6.6% is likely to be as good as it gets. The region faces a difficult [winter and recession](https://www.financedigest.com/euro-zone-downturn-deepened-in-oct-winter-recession-likely-pmi.html "Euro zone downturn deepened in Oct, winter recession likely -PMI") looms,” said Jessica Hinds at Capital Economics.

Around 120,000 Italian service sector firms could go out of business over the next 10 months due to [surging energy costs](https://www.financedigest.com/suedzucker-quarterly-profits-surge-73-5-despite-cost-rise.html "Suedzucker quarterly profits surge 73.5% despite cost rise"), with the loss of 370,000 jobs, business lobby Confcommercio said on Wednesday.

Persistent [worries about rising global interest rates and recessions](https://www.financedigest.com/hotel-investors-should-they-be-worried-about-a-potential-economic-pause-delving-into-inflation-interest-rates-recession-etc.html "‘Hotel Investors – should they be worried about a potential economic pause?’ delving into inflation, interest rates, recession etc") hounded stock and bond markets on Thursday, fuelled by the possibility the ECB will raise its policy rate by a record 75 basis points next week.

Bets on that bumper move meant the closely-watched gap between [German and Italian bond yields](https://www.financedigest.com/german-yields-steady-spreads-tighten-after-recent-repricing.html "German yields steady, spreads tighten after recent repricing") expanded to its widest since late July.

The key decision at the upcoming [meeting will be between a 50bp or 75bp hike,”](https://www.financedigest.com/the-recent-bank-of-england-meeting-the-biggest-rate-hike-recession-warning-and-the-fallout.html "The recent Bank of England meeting, the biggest rate hike, recession warning and the fallout") Morgan Stanley said in a note to clients.

We think it is a very close call, with good arguments on each side, but ultimately think those advocating for a larger hike will prevail as September [offers the best opportunity](https://www.financedigest.com/surgical-equipment-market-high-trend-opportunities-offers-future-business-growth-by-2030.html "Surgical Equipment Market High Trend Opportunities Offers Future Business Growth by 2030") to send a clear signal of determination.

[(Reporting by Jonathan Cable; Editing by Tomasz Janowski)](https://www.financedigest.com/cable-cars-and-ropeways-market-report-size-growth-demand-scope-opportunities-and-forecast-2016-2026-fmi.html "Cable Cars and Ropeways Market Report | Size, Growth, Demand, Scope, Opportunities and Forecast 2016-2026: FMI")


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