Eurozone Private Sector Growth Weakens As Impulse From Reopening Fades

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The euro area private sector growth lost momentum in August following a rebound from the downturn caused by the coronavirus pandemic, flash survey data from IHS Markit showed Friday.

The composite output index fell unexpectedly to 51.6 in August, while the score was expected to remain unchanged at 54.9. Nonetheless, a score above 50 indicates expansion.

The fall back in the composite PMI suggests that the initial V-shaped rebound following the lifting of the lockdowns is already fizzling out, Jessica Hinds, an economist at Capital Economics, said.

“We suspect that activity will remain below pre-crisis levels for at least the next couple of years,” the economist added.

IHS Markit said the recovery was undermined by signs of rising virus cases in various parts of the euro area, with renewed restrictions impacting the service sector in particular.

The softer overall expansion was caused by the weakness in the service sector as growth of manufacturing production quickened in August.

The services Purchasing Managers’ Index dropped more-than-expected to 50.1 in August from 54.7 in July. The expected level was 54.5.

At the same time, the manufacturing PMI came in at 51.7 versus 51.8 a month ago. The reading was forecast to rise to 52.9.

Both business activity and new orders rose moderately in August, and at slower rates than in July. Growth in new business was undermined by a fall in new export orders.

Companies across the single currency bloc continued to scale back workforce numbers. Employment decreased for the sixth successive month in August although the rate of reduction softened further.

On the price front, the survey showed that input costs increased for the third month with the increase centered on the service sector. Manufacturing input costs were broadly unchanged.

Companies continued to lower their own selling prices, extending the current sequence of decline to six months.

By country, growth in Germany remained solid, seeing only a moderate slowdown from July. Meanwhile, growth in France suffered a loss of momentum following a strong rebound in the previous month.

Germany’s flash composite output index fell more-than-expected to 53.7 in August from a near two-year high of 55.3 in July. Economists had forecast the score to climb to 55.0.

The drop in the indicator reflected a slower rise in service sector business activity. By contrast, manufacturing production rose sharply and at the quickest rate for two-and-a-half years.

The services PMI fell to 50.8 from 55.6 in July. The expected reading was 55.1. Meanwhile, the manufacturing PMI rose to 53.0 from 51.0 in July. The score was also above economists’ forecast of 52.5.

France’s private sector growth moderated in August after logging a nearly two-and-a-half years’ fastest expansion in July.

The flash composite output index fell more-than-expected to 51.7 in August from 57.3 in July. The reading was forecast to fall marginally to 57.2.

The slowdown was broad-based, with both manufacturers and service providers registering softer growth than in July.

The services PMI dropped to 51.9 from 57.3 in July. The expected reading was 56.3. At the same time, the manufacturing PMI came in at 49.0 versus 52.4 a month ago. Economists had forecast the score to rise to 53.7.

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