Euro zone PMI rises but worries over inflation, Delta variant persist

by | Aug 4, 2021

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Euro zone business activity expanded at its fastest pace since 2006 but rising prices and the spread of the Covid Delta variant dampened sentiment, according to a survey published on Wednesday.
IHS Markit’s final composite Purchasing Managers’ Index climbed to 60.2 last month from June’s 59.5, its highest level since June 2006 as the easing of Covid-19 curbs and rapid vaccine rollout boosted the bloc’s service industry.

The figure was above the 50 mark which separates growth from contraction, but slightly below a 60.6 “flash” estimate.

Supply chain disruptions and labour shortages meant input prices surged at the fastest rate in more than 20 years. Businesses were also worried about more curbs to contain the more infectious Delta strain.

“Europe’s service sector is springing back into life. Easing virus restrictions and further vaccination progress are boosting demand for a wide variety of activities, especially in tourism, travel and hospitality,” said Chris Williamson, chief business economist at IHS Markit.

With more of the services industry reopening, the sector’s PMI index rose to 59.8 from 58.3 in June, below the preliminary estimate of 60.4 but still its highest final reading since June 2006.

Inflationary pressures were also felt by services firms and the composite input price index rose to 69.9 from 69.8.

“Worries about the Delta variant have become more widespread, however, subduing activity in some instances and raising concerns about the possibility of virus restrictions being tightened again,” Williamson said.

“Hence services growth in July was slightly less marked than the earlier flash estimate and future expectations cooled, presenting a significant downside risk to the outlook and hinting that growth could begin to slow again as we head toward the autumn.”

Economists at Oxford Economics said that downside risks to the 2021 outlook remain, but expected the shortages of input factors and continued supply-chain disruptions affecting manufacturing “to start gradually easing soon”.

“For the services sector it will be pivotal to maintain the high vaccination speed to limit the spread of the already prevalent Delta variant, especially since we expect consumption to shift towards services.”

“While we think that these factors won’t derail the rebound, they could delay some of the recovery.”

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