The euro zone economy lost some momentum in August, but is still on track for solid growth in 2021 third quarter, according to preliminary data released recently by IHS Markit, whose flash composite purchasing manager’s index (PMI) for the region hit a two-month low of 59.5 in August versus 60.2 in July. A reading above 50 represents an expansion in economic activity.
“Encouragement comes from a second month of job creation at the strongest for 21 years, which reflects efforts by firms to boost operating capacity and meet demand, which should ultimately further help bring price pressures down,” Chris Williamson, chief business economist at IHS Markit, said in a statement.The euro zone economy lost some momentum in August, but is still on track for solid growth in 2021 third quarter, according to data released recently by IHS Markit, whose flash composite purchasing manager's index for the region hit a two-month low of 59.5 in August versus 60.2 in July. A reading above 50 represents an expansion in economic activity.#
Growth estimates last month showed that the euro area had bounced back from a technical recession (defined as two consecutive quarters of economic contraction) by growing by 2 per cent in the second quarter of this year.
“The concern is that we are seeing some upward movement on wage growth as a result of the job market gain, which could feed through to higher inflation, and supply delays from Asia in particular look likely to persist for some time to come,” Williamson added.
As a result, momentum slowed more in manufacturing than in services. The former hit a six-month low in August, whereas services fell to a two-month low.
French businesses did not escape the slow down in momentum during August. The flash composite PMI for the country slipped to 55.9 in August from 56.6 in July, representing 4-month low. However, the data still points to solid growth in the third quarter of the year.
“Despite some of the challenges businesses are facing on the supply side, it’s encouraging to see PMI data consistently signaling robust expansion,” Joe Hayes, senior economist at IHS Markit, said.
In Germany, where a federal election is due next month, business activity also slipped to a two-month low. The flash composite index for the country stood at 60.6 in August, down from 62.4 in July.
“Although growth has slowed down since July, the data are still pointing to a stronger economic expansion in the third quarter than the provisional 1.5% increase in GDP seen in the three months to June,” Phil Smith, associate director at IHS Markit, said.
“Many manufacturers remain inhibited by a dearth of materials and components and supply delays, which are likely to remain constraining factors for months to come,” he added.
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