By Ed Frankl
Business activity in the eurozone weakened further in August, as the bloc’s economic downturn extended from manufacturing to the services sector, data from a purchasing managers’ survey showed Wednesday.
The HCOB Flash Eurozone Composite PMI Output Index–a gauge of activity in the manufacturing and services sectors–fell to a 33-month low of 47.0, from 48.6 in July.
The reading, which indicates activity contracted as it fell below the 50 no-change mark, also came in below expectations of economists polled by The Wall Street Journal, who expected the PMI to tick up slightly to 48.8.
Services activity tumbled to a 30-month low of 48.3 in the survey, with shrinking activity reported by the survey for the first time since December.
“The service sector of the eurozone is unfortunately showing signs of turning down to match the poor performance of manufacturing,” Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, said.
Manufacturing improved a little, coming in at a three-month high, but still is well into contraction territory, at 43.7. That, however, suggests that the sluggish period of manufacturing in the euro area may have hit a bottom.
But hiring nearly stalled in the month as companies grew more reluctant to expand capacity in the face of deteriorating demand and gloomier prospects for the year ahead, HCOB said.
Inflation worries could return, too, amid higher wages and lower productivity, especially in the services sector, Mr. de la Rubia said.
“As a result, the European Central Bank may be more reluctant to pause the hiking cycle in September,” he said.
The ECB is generally expected to raise its key deposit rate by another 25 basis points in September, to 4.0% from the current 3.75%. However, economists debate the future rate path from there.
The PMI figures, alongside other data, now suggest that GDP will shrink by 0.2% in the third quarter, Mr. de la Rubia said.
In addition, the data suggests the eurozone is now on the brink of a recession, as it is now at a level at which the economy usually contracted in the past, according to Christoph Weil, senior economist at Commerzbank.
PMI data earlier Wednesday showed German business activity slumped to the steepest decline for more than three years in August, while France’s was unchanged but remained in contraction territory.
Write to Ed Frankl at [email protected]
Read the full article here
