A study by the European Central Bank on Tuesday concluded that service activity in the Eurozone may decline further in the coming quarters due to rising interest rates, but the impact on the sector may be less severe than on manufacturing. The manufacturing sector in the Eurozone has been experiencing a recession for most of 2023, partly due to rapid interest rate hikes by the European Central Bank, which were part of efforts to contain rampant inflation. However, demand for services remained relatively strong, supporting overall growth.
The European Central Bank stated in an economic bulletin, “The dynamics of manufacturing contain relevant information about short-term dynamics in services, and thus, for the rest of the economy, it seems that manufacturing leads services, while a clear leading relationship in the other direction cannot be established.” The European Central Bank raised interest rates from negative territory to a record level of 4% over the year, responding to an unexpectedly sharp increase in inflation across the economy, leading to higher costs for everything from energy and food to services.
The industrial sector responded quickly to the capital-intensive contraction in early the third quarter of 2022, even when services appeared to be more flexible. However, the European Central Bank also noted that the overall impact of the contraction on services is likely to be smaller. The bank added that “monetary policy shocks have an impact on manufacturing that is roughly twice as strong and around forty percent faster than their impact on services.”
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Shady Fouad is a technical analyst at LDN Company
Shady's strategic vision in the currency markets is reinforced by more than fifteen years of trading experience, which enables him to blend economic and technical analyzes with high efficiency, and find the best investment ideas for traders.
