Eurozone companies report slowdown in business momentum
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Eurozone firms have recorded a further slowdown in business momentum but overall economic growth is likely to remain positive as expansion in services offsets a manufacturing recession, a European Central Bank (ECB) survey has found.
The eurozone economy is barely growing as Germany, its biggest economy, could be in recession with the ECB lowering interest rates by 0.25% — for the third time this year — on Thursday in hopes of arresting any further decline.
The souring mood among the 95 large non-financial firms surveyed reflected growing concerns about competitiveness, uncertainty about the green transition, high costs and worries over political developments.
"This was causing businesses to scale back investment and focus on cost cutting, which also weighed on consumer confidence," the ECB said, based on the survey which was conducted between September 16 and September 26.
"Overall activity tended to be below prior expectations, mainly in Germany and France, but was generally more resilient elsewhere," the ECB added. All this adds up to a further moderation in price growth, the firms said, possibly bolstering the case for the ECB to cut interest rates quickly.
The automotive sector was among the weakest and this had a knock-on effect on the broader manufacturing sector as overall demand was weak and demand for battery electric vehicles was also waning, the ECB added.
"Contacts pointed to a deteriorating global economic and political environment, including, most notably, the slowing and increasingly self-sufficient Chinese economy, which was dampening export demand and intensifying import competition," the ECB said.
Firms said they did not expect much change to the overall subdued growth environment in the short term and their employment expectations were also muted as they focus on raising efficiency and productivity.
The rate cut on Thursday comes as inflation continues to recede dropping to 1.7% across the eurozone. According to a separate ECB survey, this time of professional forecasters, inflation is now expected to return to its 2% target sooner than expected and will likely hover around this level even in the longer term.
Economists who responded to the survey said they now see inflation next year at 1.9%, below the 2% predicted three months ago, and see it holding at 1.9% in 2026.
This is somewhat quicker than the ECB's own forecast, which puts inflation back at target only in the final quarter of 2025, and sees the year's average at 2.3%. In the longer term, defined as 2029, inflation is seen at 2.0%, right on the ECB's target.
Forecasts for underlying inflation, a key concern for policymakers because of rapid price growth in services, was unchanged at 2.2% in 2025 and 2.0% in 2026.