OPINION
Market Rating Before FOMC MeetingJan 31
Economic Activity Continues to Weaken in Europe
According to preliminary reading data released by IHS Markit and S&P Global today, the composite purchasing managers index (PMI) in the eurozone fell to 47.1 points, below market expectations of 47.4 points in October. The data was 48.1 points in the previous month. In this period, manufacturing PMI fell from 47.8 to 46.6 points, while services PMI was 48.2 points.
Looking at the details of the report published by Markit Economics, in the text, which draws attention to the decline in the manufacturing and energy sectors, it is emphasized that the loss in service activities continued to decrease due to the spread of increases in cost-of-living to a wider base.
In the PMI data, which was announced at the lowest level since April 2013, excluding the time of the lockdown measures of the coronavirus pandemic, it was stated that the decrease in factory production for 5 months and the decrease in service production for 3 consecutive months played an important role.
While it was stated that price pressures caused a sharp decline in demand, it was stated that the decrease in production orders, excluding the pandemic, also experienced the sharpest decline since April 2009.
In the report, which pointed out the decrease in new orders as well as the decrease in sales volumes, it was noted that after the weakening of working conditions in some sectors, food and energy supplies created significant concerns over the inflation outlook.
While the report states that supply chain delays fell to the lowest level for more than two years in October and this was linked to suppliers being less busy due to weaker demand, it also noted that the input purchases from the manufacturers experienced weaker-than-expected sales and the lower production requirements reflected the increasingly broad-based destocking policies.
Even though the reduction in raw material supply constraints helped alleviate some inflationary pressures, it was emphasized in the report that rising energy costs and rising wage pressures kept the producer inflation rate at a high level. While it was pointed out that stocks increased due to lower-than-expected production and sales volumes, it was stated in the text that the accumulation in stocks could create additional pressure on the sector in the upcoming months.
The data published by S&P Global shows that the economic activity in Europe continues to slow down significantly. In particular, data, occurring below the threshold 50 value, point out that the contraction in service and manufacturing sector conditions is increasing every month. This is in a sense a preliminary indication that the recession risks hung from the third quarter to the fourth quarter. As long as inflationary pressures do not ease or there are no significant wage increases, a significant recovery in the service sector does not seem likely at the moment. The high input costs caused by the war will continue to be a downside risk in terms of manufacturing activities.
Looking at the details of the report published by Markit Economics, in the text, which draws attention to the decline in the manufacturing and energy sectors, it is emphasized that the loss in service activities continued to decrease due to the spread of increases in cost-of-living to a wider base.
In the PMI data, which was announced at the lowest level since April 2013, excluding the time of the lockdown measures of the coronavirus pandemic, it was stated that the decrease in factory production for 5 months and the decrease in service production for 3 consecutive months played an important role.
While it was stated that price pressures caused a sharp decline in demand, it was stated that the decrease in production orders, excluding the pandemic, also experienced the sharpest decline since April 2009.
In the report, which pointed out the decrease in new orders as well as the decrease in sales volumes, it was noted that after the weakening of working conditions in some sectors, food and energy supplies created significant concerns over the inflation outlook.
While the report states that supply chain delays fell to the lowest level for more than two years in October and this was linked to suppliers being less busy due to weaker demand, it also noted that the input purchases from the manufacturers experienced weaker-than-expected sales and the lower production requirements reflected the increasingly broad-based destocking policies.
Even though the reduction in raw material supply constraints helped alleviate some inflationary pressures, it was emphasized in the report that rising energy costs and rising wage pressures kept the producer inflation rate at a high level. While it was pointed out that stocks increased due to lower-than-expected production and sales volumes, it was stated in the text that the accumulation in stocks could create additional pressure on the sector in the upcoming months.
The data published by S&P Global shows that the economic activity in Europe continues to slow down significantly. In particular, data, occurring below the threshold 50 value, point out that the contraction in service and manufacturing sector conditions is increasing every month. This is in a sense a preliminary indication that the recession risks hung from the third quarter to the fourth quarter. As long as inflationary pressures do not ease or there are no significant wage increases, a significant recovery in the service sector does not seem likely at the moment. The high input costs caused by the war will continue to be a downside risk in terms of manufacturing activities.
