Euro Area: Business activity expands at fastest pace in 21 years in July amid easing restrictions and sustained price pressures

Euro Area PMI July 2021

Euro Area: Business activity expands at fastest pace in 21 years in July amid easing restrictions and sustained price pressures

The flash Eurozone Composite Purchasing Managers’ Index (PMI), produced by IHS Markit, rose to 60.6 in July from 59.5 in June amid a further removal of restrictions and sustained progress on the vaccination front. Therefore, the index moved further above the 50-threshold that distinguishes expanding from contracting activity in the private sector.

In July, the services sector moved further into expansionary territory, as activity increased at the fastest pace in 15 years and new orders recorded the strongest rise since July 2007 amid the further easing of social distancing measures. Meanwhile, the manufacturing sector continued to expand strongly, albeit at a somewhat softer pace than in June due to protracted shortages of inputs. Additionally, firms continued to add jobs at a sharp pace.

On the price front, input costs increased at a near-record pace, with costs for manufacturing companies surging at the fastest pace on record amid protracted supply disruptions and robust demand. In turn, output prices rose at a marginally softer pace than June’s record high amid a steep rise in backlogs of uncompleted work. Lastly, business optimism dropped to a five-month low likely due to the spread of the delta variant.

Assessing the Eurozone’s two largest economies, growth in business activity accelerated in Germany, while it moderated in France.

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

“Supply chain delays remain a major concern for manufacturing, constraining production and pushing firms’ costs higher. These higher costs have led to a near record increase in average selling prices for goods and services, which is likely to feed through to higher consumer prices in coming months.”

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

“Better than expected PMIs confirm the strong rebound expected for 3Q, as reopening services make up for the slight decline in manufacturing output due to supply chain problems. Inflation pressures persist, forcing a dovish ECB to remain on its toes for the autumn meeting.”

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