FX.co ★ Business activity in EU freezing in December

Reuters reported that overall business activity in the eurozone worsened its decline in December. Analysts caution that the European economy is actually on the verge of recession.

Earlier this year, analysts detected the green shoots of recovery in the EU economy. Alas, the glimmer of hope has failed.

The eurozone’s economy shrank by 0.1% in Q3 2023, scrapping ambitious plans of market participants. The latest composite PMI released in December, embracing business activity in the service and manufacturing sectors, settled firmly in the contraction territory. Moreover, business activity had been losing momentum in each of the three months of Q3 2023. Besides, the eurozone’s services PMI sank to 48.1 points.

Demand for services in the eurozone slumped because indebted consumers strived to spend their means sparingly. Households are struggling to pay off huge loans due to high borrowing costs.

The recent economic data signals that the EU economy has been going through dire straits. The recovery in the EU economy is currently out of the question, experts say. This gloomy picture indicates that a recession could be around the corner in the final quarter of 2023.

Negative trends have affected most European companies. They do not expect any improvement in the short term. For this reason, employers have been cutting jobs for the second month in a row.

Under such gloomy economic conditions, the ECB maintained the status quo and kept interest rates on hold. The regulator even did not drop any hints about the likelihood of rate cuts in the near future. ECB President Christine Lagarde admitted that borrowing costs would remain at elevated levels for longer than initially planned.