Europe’s economy took another downward lurch in November, survey shows

The one prop that has supported Europe’s economy all year appears to be collapsing, new business surveys suggested today.
S&P Global’s purchasing managers’ index (PMI) for the eurozone fell to a 10-month low of 48.1, clearly below the 50 level that typically indicates an economic contraction.
The euro fell as much as 1 percent against the dollar on the news, as financial markets bet that the European Central Bank will be forced to cut interest rates more aggressively in response. By mid-afternoon, it had recovered to trade around $1.0423, but was still on course for its lowest weekly close in two years.
Traders now expect a 50 percent chance that the Bank will cut rates by a double-sized 50 basis points when its Governing Council next meets on Dec. 12.
Policymakers’ attention has mainly been focused on the poor performance of the manufacturing sector, hit by high energy prices and competition from abroad, but S&P’s services PMI also reversed into negative territory for the first time since January, at 49.2, down from 51.6 in October. The manufacturing PMI, meanwhile, went deeper into negative territory, at 45.2, due mainly to a clear deterioration in France.
“Things could hardly have turned out much worse,” said Hamburg Commercial Bank chief economist Cyrus de la Rubia. “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.”
Germany has been the principal laggard in the eurozone since the pandemic. Today’s readings show that France is struggling too — with the services PMI dropping well below analyst expectations of 49 to 45.7 as the boost from the Olympic Games receded in the rear-view mirror.
“Political uncertainty appears to be a significant drag on the economic momentum in Germany and especially France” said Barclays analyst Saadalla Nadra-Yazji in a note to clients, pointing to the “ongoing fiscal uncertainty surrounding the budget discussions and the risks of the Barnier government collapsing.”
By comparison, he noted, things looked slightly better in Germany, where more businesses appeared open to the possibility of the new U.S. administration’s policies actually supporting demand.
The central bank governors of both countries were, however, at pains to play down the surveys. Bank of France Governor François Villeroy de Galhau said the survey was only one of three that his institution looks at, and that overall, the surveys showed “resilience”, if not a “recovery”.
Bundesbank President Joachim Nagel, meanwhile, told the same banking event in Frankfurt that the PMIs merely confirmed an “overall picture that the German economy is stagnating this year.”
The news came of top an earlier disappointment from Germany, where official data showed gross domestic product had grown by a mere 0.1 percent in the third quarter, less than the 0.2 percent expected.