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(Bloomberg) — Eurozone businesses are seeing tentative signs that the region’s economic slump may ease as record inflation cools and expectations for future output improve.

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A gauge measuring activity in manufacturing and services rose unexpectedly in November, according to S&P Global. Although it still strongly indicates that a recession in the 19-country region is underway, it suggests that the downturn may be less severe than expected.

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In Germany, Europe’s largest economy, factory purchasing managers reported improved availability of supplies and shorter lead times for inputs. Private sector output fell further for a fifth consecutive month, with France experiencing its first contraction since February 2021.

For the eurozone, the data is consistent with gross domestic product falling at a quarterly rate of just over 0.2%, according to S&P Global. Its composite purchasing managers index rose to 47.8 in November from 47.3 the previous month. A level above 50 would indicate growth.

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“Severe slowdown”

“It is clear that manufacturing remains in a worrying recession and that service sector activity is also still under intense pressure,” said Chris Williamson, economist at S&P Global. “A recession therefore seems likely, although the latest data raises hopes that the magnitude of the downturn may not be as severe as previously feared.”

As orders continued to fall at a healthy pace in November and job growth slowed accordingly, warm weather has eased some fears of energy shortages in the coming months. Price increases have also moderated.

“Not only should this help contain the cost-of-living crisis to some degree, but the more favorable inflation outlook should alleviate the need for further aggressive policy tightening,” Williamson said.

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Policymakers at the European Central Bank have signaled that they are far from done with raising interest rates and plan to begin shrinking the institution’s balance sheet soon. At the same time, appetite for a repeat of the outsized three-quarter point increases of September and October appears to be fading, with even some of the most hawkish officials embracing a more moderate 50 basis point move.

PMI readings for the UK and US later Wednesday are expected to show a lack of growth in both economies. Australian data released earlier showed the PMI index fell to 47.7 from 49.8 in October, the lowest since January.

—With help from Harumi Ichikura and Mark Evans.

Eurozone corporate signal collapse may be shallower than expected

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