'Deep Eurozone recession' warning: Fears of market COLLAPSE as currency in meltdown
A CHIEF ECONOMIST has warned of a deep recession in the Eurozone.
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Contraction has for a second straight month pinned the single currency to a 20-year low against the dollar today, with surging gas prices dragging Europe towards recession. While the S&P flash composite Purchasing Managers' Index (PMI) of business activity in Europe was not as bad as feared, analysts said more grim news for the economy is likely given how energy prices have surged to record highs.
Benchmark gas prices in the European Union surged 13 percent overnight to a record peak, having doubled in just a month to now be 14 times higher than the average for the last 10 years.
Robin Brooks, Chief Economist at the Institute of International Finance, warned in a tweet: "For the past six months, every bounce in the euro has been a good opportunity to sell the single currency. It's the same today.
"Weaker-than-expected flash PMIs for the US briefly lifted the euro. But the real story isn't US recession. The real story is deep eurozone recession."
Europe is already braced for fresh disruption in energy supplies from Russia.
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Michael Hewson from CMC Markets said: "I can't see the Ukraine war coming to an end anytime soon, that would be the catalyst for a market rally. That is going to keep pressure on energy prices and as for the euro, the only way is down."
European shares slid on Tuesday, extending their losing streak for a third session with investors fretting about soaring energy prices and a weak economic outlook after data showed business activity in the region contracted this month.
The pan-European STOXX 600 slipped 0.4 percent, dropping to its lowest in almost a month.
Eurozone business activity contracted for a second consecutive month in August as the cost-of-living crisis forced consumers to reduce spending while supply constraints hurt manufacturers, a survey showed.
The downturn deepened in Germany this month as companies saw demand weaken because of high inflation, rising interest rates and economic uncertainty.
Separately, the manufacturing index rose to 49.8 this month from 49.3 in July, beating analysts' forecasts of 48.2.
Germany's DAX dipped 0.3 percent after the data.
Mr Hewson said: "It's been another day of poor economic data for European markets with the latest flash manufacturing PMI numbers falling into contraction territory for Germany, France and the UK."
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However, he noted that even though economic data has been poor, the reaction of markets has been slightly more ambivalent.
Autos and banks rose 1.1 percent and 0.3 percent respectively, while energy led gains by rising 3.5 percent as crude prices rose over concerns of tight supply.
Meanwhile, London's markets stumbled as early economic data for the month revealed a weak showing for UK factories as customer demand continues to weaken.
A downbeat PMI report offset positivity among oil firms.
Early trading was nervous around Europe after the biggest economies in the region all showed weakness in their manufacturing sectors
It came after trading sentiment was compounded further by a slowdown in activity in the US.
The FTSE 100 ended the day down 45.68 points, or 0.61 percent, at 7,488.11.
Mr Hewson said: "The FTSE 100 is underperforming though today's weakness may be more to do with the fact that it has managed to perform better than its peers over the past week and is playing catch-down so to speak."
On Wall Street, the Dow Jones opened in the red after the PMI figures showed US private sector output sliding to a 27-month low.
The pound was down 0.02 percent against the dollar at 1.185 and was 0.07 percent lower against the euro at 1.187 at the close.