The European economy continues manifesting signs of a recession. The recent data on the business activity indicator, which has been falling for two months in a row, provided fresh evidence that the economic contraction is on the way.
August saw a second successive monthly reduction in business activity across the euro area. Thus, the indicator dropped below 50 points to 49.2 points. Notably, some analysts foresaw a deeper economic slump. It is quite possible that now these predictions are coming true. The fact is that the record high inflation is sapping demand, extending its influence over more and more sectors. “Declining output is now being seen across a range of sectors, from basic materials and auto firms through to tourism and real estate companies as economic weakness becomes more broad-based in nature,” Andrew Harker of S&P Global Market Intelligence said. In this light, the European Central Bank is facing a dilemma since it has to raise the key interest rate to combat the fastest growing inflation in the last decade. Meanwhile, analysts at Goldman Sachs are sure that the expectations of the upcoming recession would hardly come true. “Major economies won't fall into monetary policy-driven recessions over the next year,” Goldman Sachs Group Inc. said.
