Bad news for Europe: Recession risk reemerges

Europe’s Manufacturing Sector Faces Challenges

The recovery in Europe continues to show mixed signals.
Manufacturing activity in the region worsened last month, with demand decreasing at a much faster rate despite factories cutting prices, according to a survey.

The final Eurozone Manufacturing PMI, compiled by S&P Global, fell to 45.8 in June from 47.3 in May, just above a preliminary estimate of 45.6.
It remains below the 50 mark that separates growth from contraction for two years now.

The data also remained below the survey average of 51.6, with production contracting at the fastest pace so far this year.
Analysts are now questioning whether the recession has truly been averted or could still hit the region.

Although slightly above estimates, the manufacturing PMI result was still disappointing for the Eurozone.
Furthermore, new orders, purchasing activity, and employment all decreased at a faster pace.

On the pricing front, production costs increased for the first time since February 2023, leading factories to reduce discounts.
Selling prices saw a slight decrease, the slowest rate in over a year.
Finally, the prospects for production in the next 12 months are positive.

“It’s rather depressing to see new orders declining at an accelerating rate.
This drop comes after a record 25 consecutive months of declining demand, but there was a vague hope that things would improve in May when the respective index showed some increase,” commented Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank.

Is a recession a risk? According to the expert, not quite.
“PMI indices for all Eurozone countries, except Italy, deteriorated in June.
However, we are inclined to view this more as a temporary event rather than a signal of a prolonged recession,” he stated.

Italy showed a manufacturing PMI of 45.4, higher than estimates and the previous result.
In comparison, the other two major European economies, France and Germany, showed manufacturing activity slightly above forecasts but below previous data.

Darker clouds are gathering on the horizon for Europe.
The still weak industrial sector data adds to the political turbulences of the old continent and the uncertainty about the path of inflation.