Supply constraints are beginning to take their toll on potential growth in euro countries. After reaching 15-year highs in July, the bloc’s main indicator of activity fell in September for the second month in a row due to a shortage of inputs – which hampers manufacturing production – and somewhat less strong service sector activity after the powerful initial post-pandemic rebound . The arrival of new industrial orders and employment also slowed its expansion and business expectations, while remaining in clearly positive terrain, were the least optimistic since February, according to data published this Tuesday by the consultancy IHS Markit.
The activity index that the British firm produces on a monthly basis, the PMI, went from 59 points in August to 56.2 in September, the lowest reading since April. The boundary between the expansion and contraction of activity is at 50 points. “The current economic situation in the euro zone is an unwanted mix of increasing price pressures and slower growth. Both are linked to the shortage of supply, especially in the manufacturing sector, ”says its chief economist, Chris Williamson. “Supply shortages are likely to continue to affect manufacturing well into next year. In these circumstances, the economy is increasingly dependent on the services sector to maintain a solid recovery path ”.
By country, the data point to a “general loss of momentum” in September that, however, particularly affected the two largest economies in the bloc (Germany and France). On the other hand, Ireland – which depends to a great extent on the export of services – was the one that maintained the best tone.
Despite attenuating its improvement compared to August, the euro area labor market continued its upward path in September. A trend “evident” in all geographies, according to analysts at the British consultancy, although – again – with particularly positive data in Ireland.
“Although for now the pace of expansion in general remains relatively strong by historical standards, the eurozone economy enters the last quarter of the year with an increasingly slow growth trajectory,” appreciates Williamson. The decline in business confidence, he adds, adds “more downside risks” to the economic outlook.
The price of inputs rises at the fastest rate in more than two decades
After several years out of the picture, the return of inflation is marking the most immediate economic future in the heart of Europe. Last week, the European statistical office announced that in September prices had climbed at their fastest pace in 13 years. And this Tuesday, the IHS Markit data confirm this increase in inflationary pressure with a conclusive fact: business supplies, whose price ends up being transferred sooner or later to consumers, became more expensive in the ninth month of the year to its maximum since July 1998 , more than 23 years ago. Companies in the service sector suffered this increase to a greater extent than those in the secondary sector.
Better tone of services than industry
For the first time since the health crisis broke out, the tertiary sector – by far the most affected by the confinement and the subsequent restrictions imposed to stop it – grew at a faster rate than the secondary sector, which managed to stay afloat much better even when the The virus was raging more intensely and it took refuge in exports as a lifeline. But this turn of the tables is not necessarily good news: it has to do, above all, with the recent problems in supply chains that are making life miserable for more than a few manufacturing firms. And, in any case, the growth rate of both sectors was “considerably slower” than in August.
Expectations for the next 12 months also affect this sector gap: service companies remained “very optimistic” about the increase in activity levels as the global economy maintains its post-pandemic momentum.