Europe’s economy goes into reverse as inflation crisis grips Brussels

SURGING inflation has forced the eurozone economy to the brink of recession as businesses struggle with soaring inflation, stuttering supply chains and threats to the energy system.

Germany is leading the downturn while the French economy is stagnating, according to the influential purchasing managers’ index (PMI) survey of businesses from S&P Global.

The eurozone PMI fell to 49.4 this month, down from 52 in June. Any score of below 50 indicates private sector activity is shrinking.

The drop was led by factories as the manufacturing index sank to 46.1, pointing to the sharpest contraction since May 2020 when the continent was reeling from the first waves of Covid.

The index for the services sector fell from 53 to 50.6, indicating growth has almost completely fizzled out.

In Germany, both services and the manufacturing industry are in contraction. The French economy is stagnating as services keep growing but manufacturing heads in the wrong direction.

Chris Williamson, chief business economist at S&P Global, said the data is “indicative of the economy contracting at a 0.1pc quarterly rate”.

“Although only modest at present, a steep loss of new orders, falling backlogs of work and gloomier business expectations all point to the rate of decline gathering further momentum as the summer progresses,” he said.

The wider economic and geopolitical environment is also worsening with the threat of gas rationing in the EU as Russian supplies dwindle.

European Commission officials are hoping to forge an agreement where all member states cut gas use by 15pc, which would help build up stocks of gas for use in the winter and wean the continent off Russian gas.

In Europe, the European Central Bank this week raised interest rates for the first time since 2011 as the battle against inflation takes priority over recession fears.