Economic Developments in the Euro Zone

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According to a widely watched business survey, with the relaxation of Covid-19 restrictions, activity in the service industries in Spain and Italy increased strongly last month, but the spread of the Delta coronavirus variant has led to a decline in confidence in the outlook for the coming months .

IHS Markit’s Italian Service Industry Purchasing Managers Index reached 58.0 in July, rising from 56.7 in June to the highest level since 2007. A score of more than 50 indicates that most companies have reported an expansion in activity compared to the previous month.

The relaxation of coronavirus restrictions and the return of international travel have boosted demand.

The pace of growth in the Spanish service industry is still strong, but it has slowed down from the previous month. The Purchasing Managers Index fell from 62.5 in June to 61.9, the highest level since 2000.

Companies said that the appearance of the Delta version hit foreign demand for Spanish services and raised concerns about future activities, especially in the hotel industry. Confidence fell to a four-month low.

Paul Smith, head of economics at IHS Markit, said: “The company expressed concern that the further increase in the number of infections may affect the economic recovery.”

The tourism industry in Spain is particularly dependent on countries with recent increases in Covid cases, such as the United Kingdom.

“The indicators so far show that the Delta variable has little impact on the economy, but it poses a significant risk to the outlook,” said Nicola Nobile, an economist at the Oxford Economics Institute.

The data was released a few days after business surveys showed that manufacturing expansion in Spain and Italy slowed down because commodity producers encountered supply constraints and material shortages.

The PMI of the Spanish manufacturing industry in July was 59, lower than the 60.4 in June. Data released on Monday showed that Italy was 60.3 in July, down from 62.2 in the previous month.

The survey found that service and manufacturing companies in Spain and Italy were forced to push up prices in response to continued inflationary pressures associated with supply chain disruptions.

The Eurozone inflation rate rose from 1.9% in June to 2.2% in July, the highest level since October 2018.

But economists say the pressure is temporary, and inflation in Spain and Italy will return to pre-pandemic levels next year.

“[Europe] In terms of reopening, the United States lags behind the United States to some extent, so we see a surge in economic growth later.We expect it to be in [the fourth quarter] As some of the effects of reopening gradually faded,” said Bert Colin, an economist at ING International Group.

According to GDP data released last week, the Eurozone economy is rebounding from its historical pandemic-driven downturn, with a quarterly growth rate of 2% in the three months to June, which is higher than expected.