A closely-watched survey of Chinese economic activity showed the country’s manufacturing sector shrank unexpectedly in October, raising fears about the health of the world’s second largest economy.
Capital Economics said that combined with a slowdown in Chinese construction and services, the data suggested the economy was “barely growing at all”, as policymakers deal with the fallout from a property crisis that has hit consumer confidence and foreign investment.
Saudi Arabia’s decision to slash oil production by a million barrels per day to push up prices also pushed the country deeper into recession as the economy contracted by 3.9pc in the third quarter, after shrinking 1.3pc in the previous three months.
The eurozone figures were published a day after data showed the German economy shrank in the third quarter amid a drop in consumer spending in Europe’s largest economy.
French growth also slowed sharply to 0.1pc in the three months to the end of September, following growth of 0.6pc in the previous three months as exports fell, although the country also saw a healthy rise in consumer spending.
Italy also narrowly avoided falling into a technical recession as output stagnated. The country’s prime minister Giorgia Meloni is struggling to convince investors she can grow Italy’s moribund economy while keeping debt under control.
The figures on Tuesday mean the bloc has barely grown all year amid successive interest rate hikes by the European Central Bank (ECB) that continue to weigh on growth.
In brighter news for households, separate eurozone data showed inflation fell more than expected in October to a two-year low of 2.9pc, down from 4.3pc in September. This is below analyst expectations of 3.1pc.
Salomon Fiedler, an economist at Berenberg bank, said the figures suggested the ECB was “almost certainly done with its rate hike cycle”.
However, Tomas Dvorak, senior economist at Oxford Economics, said the biggest impact of higher interest rates on growth was yet to be felt as he warned that the outlook remains bleak.
He said: “The eurozone is in for a period of economic stagnation, with growth unlikely to return until real income growth turns sufficiently positive and the peak impact of monetary tightening has passed.”
Matthew Chadwick, lead research analyst at Cornwall Insight, also warned that Europe faced gas shortages if the Chinese activity bounced back sharply.
He said: “A multitude of factors, from weather patterns to surging demand in Asia, leave Europe open to potential gas shortages if it places its faith in another high-temperature, low-competition winter.”
Mr Fiedler said the bloc was now on course to suffer a “slight” technical recession, although Chris Hare at HSBC warned that more recent survey data pointed towards “material contractions in eurozone activity across the second half of the year”.
Taken together, Mr Hare said the eurozone was on course for “stagnation rather than a slump”.
Robert Johnson is a UK-based business writer specializing in finance and entrepreneurship. With an eye for market trends and a keen interest in the corporate world, he offers readers valuable insights into business developments.
