Economic Developments in the Euro Zone
Sign up for myFT Daily Digest and be the first to learn about economic news in the Eurozone.
Economists said that a widely-watched survey showed that business activity in the euro zone expanded at the fastest rate in 15 years in August. The survey indicated that the euro zone is expected to achieve strong third-quarter growth.
The initial value of the IHS Markit Comprehensive Purchasing Managers Index reached 59.5, slightly lower than the 15-year high of 60.2 in July. A reading above the 50 mark indicates that most companies have reported an expansion in activity compared to the previous month.
The rising vaccination rate has boosted corporate optimism about the future, approaching the highest level since the start of the 2012 survey. As the manufacturing industry continues to struggle to cope with supply chain disruptions, the survey also recorded strong recruitment activities and rapid growth in input costs.
Chris Williamson, chief business economist at IHS Markit, said the euro zone economy has recorded “impressive momentum.”
Bert Colijn, senior economist at ING Bank, said it is “going all out” and predicts a quarterly growth rate of about 2% in the three months to September — the same as the strong pace in the second quarter.
“Worries about delta impact [coronavirus] Shortages of variants and inputs still exist, but so far it has not derailed the rebound,” he said. He added that service activities are still “extraordinarily strong” and “as the reopening of the economy means demand for workers, employment is increasing. Flourish”.
Employment growth remained at a 21-year high for the second consecutive month, as companies increased their staffing to meet expanding orders. The manufacturing industry has experienced some labor shortages, but the recruitment rate in the service industry has accelerated.
The shortage of materials and components put pressure on factory production. Supplier delivery times have increased significantly-a key barometer of supply delays-although this rate has slowed slightly for the third consecutive month.
Driven by the shortage of inputs and strong demand, the costs and prices of enterprises have increased at the fastest rate in 20 years.
“Supply chain delays continue to cause severe damage, often failing to meet demand and pushing up company costs,” Williamson said. However, he pointed out that “some gratifying signs indicate that these inflationary pressures may have peaked at the moment.”
Capital Macros’ senior European economist Jack Allen Reynolds predicts that consumer price inflation will “rise in August and remain above [the European Central Bank’s] Goals for the second half of the year”.
The growth rate of manufacturing activity in Germany and France, the two largest economies in the Eurozone, has slowed down.
In contrast, the growth of business activity in other parts of the Eurozone accelerated slightly, reaching the fastest rate in 21 years. Allen Reynolds said this may be “because the southern economy has benefited more from the return of tourists, even if the summer vacation is completely different from before the pandemic.”
The Rapid Purchasing Managers Index is released one week before the final results are announced, based on a typical response of approximately 85%.