Euro Zone Business Activity Stalls Amid Economic Headwinds

Euro zone business activity continued to contract in October, with both domestic and international demand weakening. The euro zone PMI slightly improved but remained below growth levels. The European Central Bank's recent rate cuts reflect its response to the sluggish economic environment and inflation concerns.

Business activity in the euro zone has once again stalled, with demand from both domestic and international markets continuing to fall, according to a survey conducted this month. The HCOB preliminary composite Purchasing Managers' Index (PMI), compiled by S&P Global, inched up to 49.7 from September’s 49.6, but remained below the crucial 50 mark, indicating contraction.

A poll conducted by Reuters had forecast a marginally higher figure of 49.8. "The data reflects a weak economic backdrop with inflation slowing in response to diminishing demand," noted Bert Colijn from ING. Despite a slight easing of contraction in the manufacturing sector, the services sector also revealed a downturn in new orders, Colijn added.

Business activity across Germany contracted less steeply compared to September, but France’s dominant services sector experienced a significant decline. The PMI for the UK, now outside the EU, indicated the slowest business growth in 11 months, with the job market shrinking for the first time this year amid looming uncertainty over the Labour government’s budget. These conditions suggest the ECB may continue with its rate cuts at the upcoming December meeting.

(With inputs from agencies.)