Euro Area: The pace of expansion in business activity moderates but remains strong in August

Euro Area PMI August 2021

Euro Area: The pace of expansion in business activity moderates but remains strong in August

The flash Eurozone Composite Purchasing Managers’ Index (PMI), produced by IHS Markit, dipped to 59.2 in August from 60.2 in July. However, the index remained comfortably above the 50-threshold that distinguishes expanding from contracting activity in the private sector.

In August, the services sector remained firmly in expansionary territory, as activity increased at broadly the same pace logged in July amid rising vaccination rates. Meanwhile, the manufacturing sector continued to expand strongly, albeit at a softer pace than in July due to protracted supply chain disruptions. Additionally, firms continued to add jobs at a considerable pace.

On the price front, both input costs and output prices rose at the third-highest rate recorded over the past two decades, exceeded only by the increases logged in the previous two months, amid supply delays and another steep rise in backlogs of uncompleted work. Lastly, business optimism remained strong but dipped to the lowest level since March due to concerns over the spread of the delta variant.

Assessing the Eurozone’s two largest economies, growth in business activity moderated in both France and Germany.

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

“Supply chain delays continue to wreak havoc, however, leaving companies frequently unable to meet demand and pushing firms’ costs higher. These costs, combined with surging demand, led to another near-record increase in average selling prices for goods and services, though there are some welcome signs that these inflationary pressures may have peaked for now.”

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

“A slight decline in Eurozone PMI indicates that the rebound is set to keep GDP growth elevated for 3Q. But concerns about input shortages in manufacturing and inflationary pressures haven’t yet abated.”

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