There was further strength in business activity in the euro zone in August with only a slight decline from tee July number which was a two decade high for any month as more companies and businesses were able to reopen and more customers were able to move around freely because of a rapid vaccination drive against the coronavirus
The business activity could have expanded even more if there were less disruption in the supply chains. However, there are fears that new coronavirus strains may lead authorities to impose new restrictions which can dent optimism.
Compared to 60.2 in July, the IHS Markit’s Flash Composite Purchasing Managers’ Index, regarded as a suitable guide for gauging economic health, dropped to 59.5 in August. Despite the drop, the value was still higher than the 50-mark that separates growth from contraction.
“The euro zone economy is firing on all cylinders again as reopening has had the expected positive effect on growth. Concerns about the impact of the Delta variant and input shortages remain but have not derailed the rebound thus far,” said Bert Colijn at ING.
In Germany, activity in both the services and manufacturing sectors were in the growth territory which confirmed the largest European economy was on a recovery path, according to a previous survey.
There was a slowdown in growth in business activity in August compared to July in the second largest economy of the European Union, France. Still the economy was resilient despite the issues with supplies of goods and trade being impacted by Covid-19 health protocols.
However, there was sharp slowdown in economic bounce-back after lockdowns were lifted in Britain with businesses struggling to cope with unprecedented shortages of staff and materials even while there was a slight drop in its strong inflation.
There was no major impact of the PMI data on markets as investors were more focused on concerns over the Delta variant of the coronavirus having an impact on growth. Investors also took into account the possible timeline for tapering monetary stimulus as the United States Federal Reserve Chair Jerome Powell’s speech at Jackson Hole this week.
Recruitment by companies in the euro zone also increased at a near record pace in August even though hiring was still unable to complete all new business coming in. That resulted in a backlog of work at the third-fastest pace in survey history.
The composite employment index held at 56.1.
A PMI covering the bloc’s dominant service industry nudged down to 59.7 from July’s 15-year high of 59.8. The Reuters poll had predicted 59.8.
“We continue to see the potential spread of more virulent virus variants and the prolongation of supply chain issues as the main risks to the economic recovery,” said Maddalena Martini at Oxford Economics.
“Therefore, the level of uncertainty around the forecast remains very high, but we still expect a strong recovery over the coming quarters.”
(Adapted from Bloomberg.com)