(Bloomberg) — Euro-area business activity unexpectedly shrank in November, a sign of the damage being wrought by political chaos and heightened discord over trade.
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The composite Purchasing Managers’ Index by S&P Global slid to 48.1 from 50 in October, dipping back beneath the level that separates growth from contraction. Analysts had estimated no change and were particularly surprised by a steep deterioration in services, where activity dropped for the first time since January.
The euro fell to its weakest levels since 2022 against the dollar as traders priced in more interest-rate cuts from the European Central Bank. The chance of a 50 basis-point reduction in December rose to 50% from about 15% at Thursday’s close.
“Things could hardly have turned out much worse,” Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, said in a statement. “The euro zone’s manufacturing sector is sinking deeper into recession, and now the services sector is starting to struggle after two months of marginal growth.”
The figures will feed concern about the prospects for Europe’s economy, which is already under threat due to the collapse of Germany’s government, France’s fiscal struggles and the trade tariffs that could ensue once Donald Trump returns to the US presidency.
“It doesn’t look like a recovery is coming anytime soon since both new orders and order backlogs have fallen even faster than in October,” de la Rubia said. He highlighted disappointing consumption — despite inflation cooling and wages rising.
While gross domestic product topped expectations in the third quarter, largely quashing bets on a heftier ECB rate cuts, the new data are reviving such wagers. Back in September, the surprisingly weak initial PMI reading was a key reason for the ECB speeding up its easing campaign, even if the figure was later revised up significantly.
“The question is how seriously this signal will be taken,” ING said in a note to clients. “The boy who cried wolf comes to mind. But don’t be mistaken, the underlying message is in line with GDP growth slowing markedly. We expect the fourth-quarter to show stagnation.”
The latest PMI disappointment won’t come as a total shock. Sentiment indicators had already softened in recent months, while Bloomberg Economics reckons Trump’s levies could shave about 1% off output.
