Euro Area: Business activity contracts at sharper pace in August

Euro Area PMI August 2022

Euro Area: Business activity contracts at sharper pace in August

The flash Eurozone Composite Purchasing Managers’ Index (PMI) fell to 49.2 in August from 49.9 in July, marking the worst reading in one year and a half—when much of the region was in lockdown due to Covid-19. Moreover, the index moved further below the 50 no-change threshold, signaling a sharper contraction in business conditions.

August’s decrease was led by almost stagnating services sector activity and another marked, albeit softer, contraction in manufacturing sector activity. New orders fell for the second consecutive month. Moreover, the pace of hiring was the softest since March 2021, while business sentiment was the second-lowest since the outbreak of the pandemic, due to concerns over the economic outlook. On the price front, input inflation eased to the lowest level in nearly one year, while output charges increased at the softest pace so far this year. That said, both remained considerably above pre-pandemic levels.

Commenting on the release, Chris Williamson, chief business economist at S&P Global Market Intelligence, stated:

“The latest PMI data for the eurozone point to an economy in contraction during the third quarter of the year. Cost of living pressures mean that the recovery in the service sector following the lifting of pandemic restrictions has ebbed away, while manufacturing remained mired in contraction in August, seeing another record accumulation of stocks of finished goods as firms were unable to shift products in a falling demand environment.”

Commenting on the release, Bert Colijn, senior economist at ING, stated:

“The August PMI indicates this economy is heading towards recession quickly if it’s not already in one. Meanwhile, weaker demand is leading to some fading of inflationary pressure, but the question is how soaring energy costs will impact this in the coming months.”

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