Euro zone economy started Q4 on the back foot, with growth slowing sharply in October. The S&P Global Purchasing Managers’ Index (PMI) for the euro zone fell to 46.6 in October, from 48.1 in September. This was the lowest reading since November 2020, and it signaled that the economy was contracting at a faster pace.
There are a number of factors that are contributing to the slowdown in the euro zone economy. One factor is the ongoing war in Ukraine, which is disrupting supply chains and pushing up energy prices. Another factor is the rising cost of living, which is squeezing household incomes and reducing consumer spending. Finally, the European Central Bank (ECB) has begun to raise interest rates in an effort to combat inflation, which is further weighing on economic activity.
The slowdown in the euro zone economy is a concern for policymakers, as it raises the risk of a recession. The ECB has already downgraded its growth forecast for the euro zone, and it is now expecting growth of just 0.2% in 2023. If the economy contracts in Q4, it would be the first technical recession since the euro zone crisis in 2012.
The ECB is facing a difficult balancing act as it tries to combat inflation without triggering a recession. The ECB is likely to continue raising interest rates in the coming months, but it may be forced to slow the pace of rate hikes if the economy weakens further.