LONDON, Aug 23 (Reuters) – Business activity in the eurozone fell much more than expected in August, with Germany suffering the most, but some inflationary pressures have returned, a survey shows. Ta.
Wednesday’s Purchasing Managers’ reading complicates matters for the European Central Bank, which still wants to keep rampant inflation in check without triggering a recession.
A narrow majority of economists polled by Reuters expect a moratorium on rate hikes in September despite rising inflation. However, further rate hikes are expected by the end of the year following the central bank’s most aggressive policy tightening cycle.
“The continued sharp decline in PMI data will test the ECB’s growth optimism,” said Mark Wall, chief European economist at Deutsche Bank.
“We expect the ECB to pause in September, but it is not yet clear if inflation is at the level the ECB wants. The pause should not be mistaken for a peak,” he said.
Activity in the region’s major service industries fell for the first time this year, with factories showing signs of recovery but manufacturing output continuing to contract.
The regional HCOB’s preliminary Composite Purchasing Managers Index (PMI), compiled by S&P Global and considered a good barometer of overall economic health, fell to 47.0 in August from 48.6 in July, 2020. It was the lowest level since November.
That was well below 50, the dividing line between growth and contraction, and all below expectations in a Reuters poll, which expected a slight drop to 48.5.
Much of that activity has been driven by companies completing old orders, with the outstanding index dropping to its lowest level since June 2020 as the coronavirus pandemic intensified its global impact.
Business activity in Germany, Europe’s largest economy, has contracted at the fastest pace in more than three years, according to a previous survey, as the service sector is expected to contract again as the slump in manufacturing output deepens. was done.
Businesses around the world remain pessimistic about the outlook as rising interest rates, customer uncertainty and high inflation continue to weigh on demand.
People walk past a restaurant in Montmartre Butte, Paris, France, on July 10, 2023.Reuters/Sarah Masonnier/File Photo Acquisition of license rights
In France, weaker demand and new orders suggest the euro zone’s second-largest economy will contract in the quarter, further shrinking its main services sector.
The UK economy outside the European Union (EU) is set to contract in the third quarter and risks slipping into recession as the PMI points to a broader slump on factory output and higher interest rates.
Euro zone bond yields and the euro fell on Wednesday’s data as traders said they expected the ECB to end its rate hike campaign soon.
service department slides
Eurozone service sector PMIs fell as indebted consumers constrained spending by rising borrowing costs.
Demand fell sharply as prices rose at a much faster pace than the ECB hoped to alienate customers. The service output price index continued to rise to 55.9, but fell to its lowest level since October 2021, below July’s 56.1.
ING’s Bart Colleen said: “Eurozone PMIs have fallen again, confirming that the economic downturn poses downside risks. Wage pressures remain a concern, while inflationary pressures on services remain. strong,” he said.
“The latter further strengthens our expectation that the ECB’s rate hike cycle is far from over.”
Inflation stood at 5.3% in July, more than double the ECB’s 2% target, but well below the measured figure at the end of last year, according to official data.
Manufacturing activity has been sluggish since mid-2022, but the latest PMI survey gives some hope that a bottom may have been surpassed. The composite index climbed to 43.7 from 42.7, its first gain in seven months, confusing a Reuters poll of expectations of a drop to 42.6.
The optimism of factory purchasing managers has improved, suggesting that the worst may be over for manufacturers.
Reported by Jonathan Cable.Editing: Hugh Lawson and Toby Chopra
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