Euro Area: Business activity growth cools in September amid supply bottlenecks and elevated inflation
The flash Eurozone Composite Purchasing Managers’ Index (PMI), produced by IHS Markit, dropped to 56.1 in September from 59.0 in August, marking a five-month low and coming in below market analysts’ expectations. However, the index remained above the 50-threshold that distinguishes expanding from contracting activity in the private sector.
The services sector remained firmly in expansionary territory in September, although activity increased at the slowest pace in four months amid concerns over the impact of the Delta variant. Meanwhile, growth in the manufacturing sector slowed to an eight-month low due to protracted supply chain disruptions. Additionally, firms added jobs at a softer albeit still-considerable pace.
On the price front, input costs in both sectors soared at the fastest pace in 21 years amid ongoing supply shortages and another sharp rise in backlogs of uncompleted work. This translated into output prices growing at the third-highest rate in the last two decades. Lastly, business optimism weakened to its lowest level since January due to concerns over the spread of the Delta variant.
Assessing the Eurozone’s two largest economies, growth in business activity cooled in both France and Germany.
Commenting on the release, Chris Williamson, chief business economist at IHS Markit, said:
“For now, the overall rate of expansion remains solid, despite slowing, but growth looks likely to weaken further in coming months if the price and supply headwinds show no signs of abating, especially if accompanied by any rise in virus cases as we head into the autumn.”
Meanwhile, Bert Colijn, senior Eurozone economist at ING, stated:
“To be sure, although growth could be stronger if not for these supply issues, the expansion is still quite robust. We are still looking at 2% GDP growth in the third quarter. The fourth quarter might be a bit weaker, as higher energy prices and continuing supply problems will start to weigh. The inflows of new orders in September already rose at the slowest pace since April. But some of the input shortages are likely to dissipate in the course of 2022.”