Eurozone companies brace for recession: ECB poll

LARGE eurozone companies are raising prices at a slower pace and bracing for a recession as high borrowing costs and inflation dampen demand, a European Central Bank survey showed on Friday (Oct 27).

The survey’s results, which were presented to ECB policymakers at their meeting this week, likely strengthened the case for keeping interest rates on hold on Thursday and putting off any discussion about other forms of monetary tightening.

“On average, contacts described a worsening of activity, consistent with a mild contraction in output for the third and fourth quarters of 2023, as well as moderating price growth,” the ECB said in its summary of the results.

“Poorly performing sectors remained weak for longer than expected, while some of the drivers of growth in better performing sectors started to wane.”

It added that hopes for an aggregate recovery in consumer spending had not materialised and some companies had pushed back their expectations for any significant pick-up in overall activity back to the second half of next year.

Companies on average expected wage growth to decrease from around 5.6 per cent in 2023 to 4.9 per cent in 2024 – a key indicator for the ECB, which has put the emphasis on pay as a driver of inflation.

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“While the delayed effect of past (multiannual) negotiations still put significant upward pressure on wages for next year, the easing of inflation and a subdued demand outlook were anticipated by some to potentially moderate wage requests or to increase the ability of firms to resist them,” it said.

The ECB contacted 56 large companies operating in the euro area outside the financial sector between Sept 25 and Oct 5. REUTERS