Eurozone Private Sector Activity Logs Biggest Fall Since Late 2020

Euro area private sector activity registered its biggest fall since November 2020 as the downturn spread from manufacturing to services, flash survey results from S&P Global and Hamburg Commercial Bank revealed on Wednesday.

The flash composite output index declined to a 33-month low of 47.0 in August from 48.6 in July, the purchasing managers’ survey showed. If pandemic months are excluded, the latest score was the lowest since April 2013.

A reading below 50 suggest contraction in activity.

Driven by the monthly fall in manufacturing output, output has dropped for three consecutive months. The service sector also declined with activity contracting for the first time since last December.

New business inflows decreased for a third straight month, with the rate of decline accelerating to the fastest since November 2020. New orders for goods decreased at the one of the sharpest rates since the global financial crisis.

Employment came close to stagnation as there was a marginal loss of manufacturing jobs and hiring in the service sector grew only marginally.

There was a sharp decline in companies’ backlogs of work signaling excess capacity relative to demand.

Further, the PMI survey showed that expectation of output for the coming year declined for a sixth straight month, dropping to their lowest since last December.

Manufacturers also continued to scale back their purchasing of inputs sharply in August. Stocks of finished goods were reduced.

On the price front, the survey showed a pick-up in inflationary pressures. Average prices charged for goods and services grew at an increased rate for the first time in seven months. At the same time, input cost inflation edged higher for the first time in eleven months.

Within major euro area economies, the steepest downturn was recorded in Germany, where output across both goods and services fell for a second month and at a rate not seen since May 2020.

At 44.7, the flash composite output index hit a 39-month low in August, down from 48.5 in July. The score was forecast to fall to 48.3.

The services PMI dropped to a nine-month low of 47.3 from 52.3 in the previous month. The score was also below economists’ forecast of 51.5.

At the same time, the manufacturing PMI rose to 39.1 from 38.8 a month ago. The expected reading was 38.7.

France’s private sector also continued to contract in August. The HCOB composite output index posted 46.6 in August, unchanged from July’s 32-month low. The score signaled a solid decline in the private sector activity. The expected score was 47.5.

Output volumes across the service sector shrank for the third straight month and manufacturing output extended the decline that has been ongoing since last summer.

The services PMI slid to a 30-month low of 46.7 in August from 47.1 in the previous month, while the reading was forecast to improve to 47.5.

Meanwhile, the manufacturing PMI unexpectedly rose to a five-month high of 46.4 in August from 45.1 in July. The score was forecast to fall to 45.0.

“Considering the PMI figures in our GDP nowcast leads us to the conclusion that the eurozone will shrink by 0.2 percent in the third quarter,” Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, said.

The Washington-based International Monetary Fund had forecast the economic growth in the currency bloc to weaken to 0.9 percent this year from 3.5 percent in 2022. The growth is set to improve to 1.5 percent next year, the lender said.

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