The outlook for the economy continues to progress downward among Eurozone PMIs.
The temporary composite Purchasing Managers’ Index (PMI) in the euro zone was 49.2 in August, down from 49.9 the previous month, according to figures from S&P Global, which prepares the survey.
This is the second month in a row that the index is below the crucial 50s. Values greater than 50 express increased activity or growth, while values less than 50 can be an expression of decline.
In advance, the index was expected to end at 49, according to Bloomberg.
So it looks like the rest of 2022 will be a battle for companies across the eurozone.
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That’s what Andrew Harker, chief financial officer at S&P Global, wrote as a closing comment in his analysis of the eurozone’s purchasing managers’ responses.
Harker believes that the numbers indicate an increase in the cost of living which erases the marked rise in the service industries after more and more restrictions were lifted from Corona.
“Production is now declining across a wide range of sectors, from basic materials and auto companies to tourism and real estate companies,” Harker wrote.
He paints a bleak picture
It is the largest economy in Europe, Germany, which forms the head of Libra. Production has not seen a clear decline since June 2020.
There, the PMI also continues to decline.
The numbers compiled so far show that the PMI was 47.6 in August, down from 48.1 in July.
– The PMI numbers paint a bleak picture of the German economy in the middle of the third quarter, S&P Global’s Phil Smith wrote in a comment.
The downturn in the German economy has affected employment activity in the country.
Employment growth was at its weakest in nearly a year and a half in August, Smith wrote.
Early on, economists had expected an even bigger drop and the index to fall at 47.3 in Germany.
German government interest rates are dropping after the numbers are released. The euro also recovered somewhat against the dollar.
In isolation, Germany’s manufacturing PMI rose from 49.3 in July to 49.8 in August, due in part to improvements on the supply side.
— But with the constant threat of an energy crisis, the outlook remains full of uncertainty, Smith wrote.
stays more than 50
The PMI number provisionally compiled from the UK in August is still above the 50s, but still shows a drop of more than one point.
The number in August fell to 50.9, down from 52.1 the previous month.
According to Annabel Fides of S&P Global, the private sector is heading for a recession. Consumers trapped by a bleak economic outlook and staff shortages have prompted many purchasing managers to report the fastest drop in production since May 2020.
– With the exception of the initial phase of the epidemic in early 2020, the decline in production was the fastest since the beginning of 2009, Fides wrote in a comment.
On the positive side, purchasing managers reported that the increase in purchase prices is starting to slow somewhat, which may affect inflationary pressure.
It could provide a small clue to the British central bank, which is currently trying to rein in inflation in the country, which has not been at higher levels in four decades.
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The fall of the French PMI
For the first time in a year and a half, the French PMI also fell below the 50s.
It finished at 49.8 in August, down from 51.7 in the previous month. Previously, it was expected to fall at 51, according to Bloomberg figures.
S&P chief global economist Joe Hayes commented on the numbers as follows:
– This indicates that the economy has now entered into contraction for the first time in a year and a half as the sharp decline in production offsets a marginal increase in activity in service industries, Hayes wrote in a comment.
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The central bank dilemma
The bleak picture painted has caused problems for the European Central Bank.
Like most other central banks, the European Central Bank is working upwards in interest rate terrain to try to beat high inflation. In July, the bank surprised with a so-called double jump in interest rates by 0.5 percentage point.
The Eurozone Purchasing Managers’ Survey gives some small indications that price inflation may have peaked, as they point to a slowing upward curve in purchase prices and market prices.
The next ECB rate meeting is in less than three weeks.
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