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Euro zone factory downturn deepened in Oct as demand slumped

FILE PHOTO: Workers assemble campers at Knaus-Tabbert AG factory in Jandelsbrunn

LONDON (Reuters) - The decline in euro zone manufacturing activity was sharper than initially estimated last month, indicating that the sector is in recession, as the cost of living crisis put a big dent in demand, a survey showed on Wednesday.

S&P Global's final manufacturing Purchasing Managers' Index (PMI) fell to a 29-month low of 46.4 in October from September's 48.4, below a preliminary reading of 46.6 and further below the 50 mark separating growth from contraction.

An index measuring output, which feeds into a composite PMI due on Friday and seen as a good guide to economic health, dropped to 43.8 from 46.3, marking its fifth month of sub-50 readings.

"The euro zone goods-producing sector moved into a deeper decline at the start of the fourth quarter. The PMI surveys are now clearly signalling that the manufacturing economy is in a recession," said Joe Hayes, senior economist at S&P Global Market Intelligence.

"In October, new orders fell at a rate we've rarely seen during 25 years of data collection – only during the worst months of the pandemic and in the height of the global financial crisis between 2008 and 2009 have decreases been stronger."

The new orders index slumped to 37.9 last month from 41.3 in September, despite a slight easing in still elevated inflationary pressures.

Inflation in the bloc surged more than expected last month, official data showed on Monday, fuelling expectations the European Central Bank will press on with big interest rate hikes despite economic growth slowing.

Worried that rapid price growth is becoming entrenched, the ECB is raising borrowing costs at the fastest pace on record and lifted interest rates again last week.

With no end in sight to the war in Ukraine or for any respite in energy costs, optimism slumped to its lowest since May 2020 - just when the coronavirus was cementing its grip on the global economy.

"Sentiment among manufacturing firms remained rooted in negative territory once again in October, suggesting that firms foresee these challenging conditions to stretch out long into 2023," Hayes said.

(Reporting by Jonathan Cable; Editing by Hugh Lawson)