Eurozone business boom continued in August -PMI

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Staff wear face masks on the Volkswagen assembly line in Wolfsburg, Germany April 27, 2020. Swen Pfoertner / Pool via REUTERS

LONDON, Aug. 23 (Reuters) – Trade activity in the euro area rose sharply again this month, only declining from the two-decade high monthly rate in July in July, as a rapid vaccination campaign against the coronavirus has allowed more businesses to reopen and customers to venture out, an investigation has shown.

Without continued supply chain disruptions, business could have grown faster, but fears that new strains of coronavirus could lead to further restrictions continued to dampen optimism.

The IHS Markit Flash Composite Purchasing Managers Index, considered a good indicator of economic health, fell to 59.5 in August from 60.2 last month. It was ahead of the 50 mark between growth and contraction, but just short of a Reuters poll estimate of 59.7.

“The eurozone economy is once again running at full speed, as the reopening has had the expected positive effect on growth. Concerns about the impact of the Delta variant and input shortages persist but have not not derailed the rebound so far, “said Bert Colijn at ING.

The services and manufacturing indices remained firmly in growth territory in Germany, confirming that Europe’s largest economy remained on the recovery path, according to a previous survey. Read more

In France, the bloc’s second-largest economy, growth in business activity slowed compared to July but remained resilient as problems with the supply of goods and COVID-19 health protocols impacted trade. Read more

But Britain’s post-lockdown economic rebound has slowed sharply as companies grapple with unprecedented staff and equipment shortages, although strong inflationary pressures have cooled somewhat. NL8N2PR3H9

Markets were not shaken by the PMI data and instead focused on concerns about the Delta variant of COVID-19 hampering growth as investors assessed the possible timeline for a reduction in monetary stimulus ahead of the speech from Federal Reserve Chairman Jerome Powell in Jackson Hole this week.

EMPLOYMENT INCREASE

Firms have increased their workforce in the eurozone at an almost record rate, but still have not been able to close all the new inbound business, building up a backlog of work at the third fastest rate in the history of the ‘investigation. The composite employment index held steady at 56.1.

A PMI covering the bloc’s dominant services industry fell to 59.7 from July’s 15-year high of 59.8 in July. The Reuters poll had predicted 59.8.

Demand slowed only slightly from July – suggesting the rebound will continue – but the Service Business Expectations Index, which measures optimism for the coming year, fell to 68.6 from 69.1.

“We continue to view the potential spread of more virulent viral variants and the prolongation of supply chain problems as the main risks to the economic recovery,” said Maddalena Martini of Oxford Economics.

“Therefore, the level of uncertainty around the forecast remains very high, but we still expect a strong recovery in the coming quarters.”

Manufacturers had another strong month, with their PMI remaining well above the break-even point at 61.5, albeit below July’s 62.8 and the survey estimate of 62.0. An index measuring production that feeds the composite PMI fell to 59.2 from 61.1.

But supply delays – the lead time index was close to a survey low – have again played a key role in raising the costs of raw materials that factories need. The input price index was 87.3, although down from a record 89.2 in July.

Reporting by Jonathan Cable; Editing by Catherine Evans and Nick Macfie

Our standards: Thomson Reuters Trust Principles.


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