Euro Area: Business activity expands at fastest pace in 15 years in June amid easing restrictions and soaring price pressures

Euro Area PMI June 2021

Euro Area: Business activity expands at fastest pace in 15 years in June amid easing restrictions and soaring price pressures

The flash Eurozone Composite Purchasing Managers’ Index (PMI), produced by IHS Markit, jumped to 59.2 in June from 57.1 in May amid a further lifting of restrictions and as vaccine progress stoked confidence. The print again surprised markets on the upside and marked the strongest reading since June 2006. Therefore, the index moved further above the 50-threshold that distinguishes expanding from contracting activity in the private sector.

In June, the services sector moved further into expansionary territory, as activity increased at the fastest pace in over three years and new orders recorded the strongest rise since August 2007 amid the further easing of social distancing measures. Meanwhile, the manufacturing sector continued to expand strongly, matching May’s pace, supported by soaring new orders and a sharp expansion in production.

Meanwhile, firms added jobs at the strongest pace in nearly three years as the administration of vaccines fed hopes for a robust recovery. On the price front, input cost inflation was the second-highest in 23 years of data collection, with costs for manufacturing companies surging at the fastest pace on record due to protracted supply disruptions and robust demand. In turn, output prices rose at the fastest pace on record amid widespread depletion of warehouses. Lastly, business optimism hit new highs on recovery hopes.

Assessing the Eurozone’s two largest economies, growth in business activity accelerated significantly in Germany, while it gained more limited steam in France.

Commenting on the release, Chris Williamson, chief business economist at IHS Markit, said:

“The strength of the upturn – both within Europe and globally – means firms are struggling to meet demand, suffering shortages of both raw materials and staff. Under these conditions, firms’ pricing power will continue to build, inevitably putting further upward pressure on inflation in the coming months.”

Meanwhile, Bert Colijn, Eurozone senior economist at ING, stated:

“Overall, the PMI confirms a picture of accelerating growth over the course of 2Q2Q as restrictive measures are eased. We expect growth to accelerate in Q3 before it levels off a bit, but overall our base case is one for strong converging growth numbers across the eurozone in 2021.”

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