Euro zone business recovery stuttered in August

Climbing out of its deepest downturn on record, the euro zone lost its footing this month.

The latest survey from IHS Markit on Friday (Aug 21) showed services were particularly muted.

Activity in the euro zone expanded last month at the fastest pace since mid-2018.

But as infection rates have risen again, some curbs have been reinstated.

The flash Composite Purchasing Managers’ Index, seen as a good gauge of economic health, sank to 51.6 from July’s final reading of 54.9.

While still above the 50-mark separating growth from contraction it was below all forecasts.

With the two biggest economies, Germany and France, falling short.

New business also dropped and some of August’s activity came from businesses completing backlogs.

The bloc’s dominant service sector stalled – its PMI fell to 50.1 from 54.7.

With demand waning, services firms cut headcount for a sixth month and more sharply.

Yet again, factory activity proved more resilient.

It didn’t suffer quite as sharp a decline as other sectors during the height of the crisis and expanded for a second month in August.

Output data though suggests factory purchasing managers don’t expect a big pick up in activity, as they bought fewer raw materials.

One poll this week suggested a full bounce-back for the euro zone could take two or more years.

Outside the euro zone it was a different picture for the UK.

The recovery among British businesses quickened again in August.

The early reading of the PMI covering the services and manufacturing sectors shot up to a nearly seven-year high of 60.3.

But snowballing job cuts continue to send an ominous signal for the months ahead.

Video Transcript

Climbing out of its deepest downturn on record, the eurozone lost its footing this month. The latest survey from IHS Markit on Friday showed services were particularly muted. Activity in the eurozone expanded last month at the fastest pace since mid-2018. But as infection rates have risen again, some curbs have been reinstated.

The flash Composite Purchasing Managers’ Index, seen as a good gauge of economic health, sank to 51.6 from July’s reading of 54.9. While still above the 50 mark separating growth from contraction, it was below all forecasts. With the two biggest economies, Germany and France, falling short, new business also dropped, and some of August’s activity came from businesses completing backlogs.

The bloc’s dominant service sector stalled. Its PMI fell to 50.1 from 54.7. With demand waning, services firms cut headcount for a sixth month and more sharply. Yet again, factory activity proved resilient. It didn’t suffer quite as sharp a decline as other sectors during the height of the crisis and expanded for a second month in August. Output data, though, suggests factory purchasing managers don’t expect a big pickup in activity, as they bought fewer raw materials.

One poll this week suggested a full bounceback for the eurozone could take two or more years. Outside the eurozone, it was a different picture for the UK. The recovery among British businesses quickened again in August. The early reading of the PMI covering the services and manufacturing sectors shot up to nearly a seven-year high of 60.3. But snowballing job cuts continue to send an ominous signal for the months ahead.

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