Euro zone business activity strong in Aug but supply issues weighed-PMI

September 3, 2021

LONDON (Reuters) – Euro zone business activity remained strong last month, despite fears about the Delta variant of the coronavirus and widespread supply chain issues, according to a survey which suggested the bloc’s economy could be back to pre-COVID-19 levels by year-end.

IHS Markit’s final composite Purchasing Managers’ Index (PMI), seen as a good guide to economic health, dropped to 59.0 last month from July’s 15-year high of 60.2, still well above the 50 mark separating growth from contraction but below a 59.5 “flash” estimate.

“It was another solid result for euro area businesses in August,” said IHS Markit senior economist Joe Hayes.

“Another strong quarter-on-quarter rise in GDP is on the cards for the third quarter, and we’re certainly on track for the euro zone economy to be back at pre-pandemic levels by the end of the year, if not sooner.”

The economy will grow 2.2% this quarter, a Reuters poll published earlier on Friday predicted. [ECILT/EU]

But ongoing supply chain disruptions caused by the pandemic meant the cost of raw materials soared again this month. The input prices index was a near record 69.5 – although down from July’s 69.9.

Inflation surged to a ten-year high of 3.0% in August with further rises likely, official data showed on Tuesday, challenging the European Central Bank’s benign view on price growth and its commitment to look past what it deems a temporary increase.

Still, with much of the service industry reopening after the lifting of many restrictions its PMI remained well above breakeven at 59.0, albeit below July’s 59.8 which was the highest reading since June 2006.

But fears lockdown measures could be re-imposed put a dent in optimism. The services business expectations index dipped to a four-month low of 68.9 from 69.1.

“While growth will naturally lose some impetus as the post-lockdown boom peters out, there are a number of other downside factors at play,” Hayes said.

“The Delta variant has taken hold in Europe, while further material shortages and transport bottlenecks continue to restrain business activity.”

(Reporting by Jonathan Cable; Editing by Toby Chopra)

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