Euro Zone Recovery Weakened In August Due To Supply Chain Issues

Despite concerns of the spread of the Delta variant of the coronavirus and significant issues of supply chains, business activity in the euro zone remained strong in August, according to a survey which indicated that the euro zone economy could get back to pre-pandemic levels by the end of the year.

Viewed to be a good guide to economic health, the IHS Markit’s final composite Purchasing Managers’ Index (PMI) dropped to 59.0 last month from a 15-year high of 60.2 in July. However the number was still comfortably above the 50 mark that separates growth from contraction. It was however below a 59.5 “flash” estimate.

“Growth momentum in the euro zone is fading according to recent surveys and nowcast indicators. The big question is whether the recovery can carry on at a decent pace and quickly close the gap with pre-pandemic GDP,” said Bert Colijn at ING.

A poll of economists published recently by Reuters forecast the economy to grow at 2.2 per cent in the current quarter.  The euro zone economy was set on a course to recoup to its pre-pandemic levels by the end of the year, if not earlier, forecast the IHS Markit.

But the costs of raw materials surged again this month because of the ongoing supply chain disruptions. The input prices index was a close to a record high at 69.5 – even though it was  it lower than the 69.9 notched in July.

Rate of inflation in August was at 3.0 per cent which was a ten-year high, showed official data earlier in the week, which was in opposition to the benign view of the European Central Bank on price growth and a challenge for the commitment of the central bank to overlook inflation at the current times as a temporary issue.

Despite this, the PMI for the service industry of the euro zone, much of which reopened after the lifting of many pandemic induced restrictions, was at 59.0 – well above the breakeven mark, even though it was lower than July’s number of 59.8 which was the highest for the index since June 2006. 

With businesses that had been hit by coronavirus lockdowns catered for pent-up demand, there was a strong expansion of the services activity in Germany, largest economy of Europe.  On the other hand, France’s growth in August was hit by staff shortages and costs pressures.

Another month of steep growth in August was reported for Italy’s services industry which kept hopes up for a strong economic rebound. Services sector of Spain also expanded for the fifth straight month with the continued phasing out of Covid-19 travel restrictions.

There was however a higher loss of growth momentum than was originally estimated in Britain, which is outside the common currency union, because of staff shortages and supply chain issues, impacted the huge services sector of the country.

On the other hand, official data showed that a sharp fall in the number of goods bought online resulted in a drop of retail sales in the euro zone which is considered as a proxy for consumer demand and which was much weaker than expected in July.

(Adapted from

Categories: Economy & Finance, Entrepreneurship, Regulations & Legal, Strategy, Sustainability, Uncategorized

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