• Firms have been under pressure due to higher inflation, particularly coming from energy costs and wage pressures.

Companies are slashing manufacturing due to inflation from rising energy costs. Private-sector activity in the euro area contracted for the fourth consecutive month in October, according to S&P Global.

European business activity took another hit in the month of October, reporting the steepest output loss since April 2013 excluding pandemic lockdowns.

The Index fell to 47.1 this month, down from 48.1 in September, which was worse than economists had anticipated. A reading below 50 indicates a contraction. With business activity slowing, fears of a looming recession are mounting across the euro area.

The steepest activity losses have been reported in manufacturing, especially in energy-intensive sectors like chemicals and plastics but services output also dropped for a third consecutive month as consumers struggle with the cost-of-living crisis, according to data.

Demand for goods and services shrank as companies and households are facing pressure due to inflation, which is largely stemming from skyrocketing energy costs.

“The Eurozone economy looks set to contract in the fourth quarter given the steepening loss of output and deteriorating demand picture seen in October, adding to speculation that a recession is looking increasingly inevitable,” an economist at S&P Global, Chris Williamson, said in a statement.

While some firms have even reported improved shipping in October, economists point out that suppliers were less busy due to falling demand. According to the outlet, input buying by manufacturers “fell at one of the steepest rates since the global financial crisis.”

“Price pressures, meanwhile, remain stubbornly elevated, as rising energy and staff costs, and the weakened euro, offset any lowering of commodity prices linked to improving supply conditions,” Williamson said, adding that the situation economically “is getting worse quite rapidly.”

The S&P Global report suggests that the economies of the 19 countries that use the euro currency will drop by 0.2% in the fourth quarter and points out that the downturn may accelerate. Given that some economists are already pricing in an economic slowdown by the end of the year, a number of firms across the euro area have suspended hiring, while others are cutting down on staff, RT reports

Firms have been under pressure due to higher inflation, particularly coming from energy costs and wage pressures.

The PMI data came ahead of a Thursday meeting of the European Central Bank’s governing board that is expected to deliver a big interest rate cut in a bid to cool inflation.

Inflation in the 19-nation eurozone stood at nearly 10 percent in September, five times the ECB’s target of two percent.

The German economy, whose energy-hungry industries relied heavily on Russian gas before the war, is now forecast to shrink by 0.4 percent in 2023.

Higher interest rates typically mean putting a dampener on business activity, as credit becomes more expensive and consumer spending decreases.

High energy prices are crimping production across Europe, including at this ArcelorMittal steel plant in the German city of Hamburg Axel Heimken AFP/File