Growth across the euro zone's private sector slowed to its weakest pace in four months in October, a survey showed on Friday, as an energy-driven rise in costs squeezed firms and France's economy contracted again, Reuters reported.

Source: Reuters

The S&P Global Flash Eurozone Composite PMI Output Index fell to 51.9 in October from 53.1 in September, its lowest reading since June and below every forecast in a Reuters poll, which had predicted a modest dip to 52.7. A PMI reading above 50 indicates growth, so the bloc is still expanding, but only just.

“Key to the broader slowdown is the further escalation of inflationary pressures seen during the month,” said Chris Williamson, chief business economist at S&P Global Market Intelligence. “Input costs are rising sharply again, the rate of increase surging in manufacturing on the back of higher energy prices, causing firms to push selling prices higher in order to protect margins.”

Input costs accelerated for a second consecutive month, linked to higher energy, fuel and transport costs in part due to the war in the Middle East, Reuters reported. Despite that, firms raised their selling prices at a slower pace than in September, suggesting some compression of profit margins.

Business confidence in the euro zone fell to a five-month low, the survey showed, with optimism dropping most sharply in manufacturing.

“Higher interest rates are also starting to take a toll, dampening demand, and the picture of sustained growth and stubbornly elevated inflation from the October flash PMI will likely add to further speculation of more aggressive policy tightening from the ECB,” Williamson added, according to Reuters. A Reuters poll earlier this month found economists expecting the European Central Bank to hold its deposit rate at 2.50% next week and raise it by 25 basis points in December, as inflation runs nearly double its 2% target — that is a poll expectation, not an ECB decision.