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Eurozone Business Activity Contracts For the Second Month Led By Germany

The Eurozone is likely in recession already but the big pain starts with an energy crunch this winter.
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S&P Global Eurozone Composite Index

Please note the S&P Global Eurozone Composite PMI® declined for the second month.

Key Findings

  • Final Eurozone Composite Output Index at 48.9 (Jul: 49.9). 18-month low. 
  • Final Eurozone Services Business Activity Index at 49.8 (Jul: 51.2). 17-month low
  • National PMI data indicated that Germany was the key driver of the overall decline in eurozone business activity
  • The only other country to see activity decrease at the composite level was Italy, where output dropped for the second month running, albeit marginally in August.
  • Although output continued to increase in France, Spain and Ireland, rates of expansion were only modest and slowed to the weakest in 17, seven and 18 months respectively.
  • Manufacturing output has now fallen in three consecutive months. Falling activity was largely a function of a worsening demand environment, with steep inflationary pressures and associated cost of living concerns leading clients to hold off on buying decisions  

Chris Williamson, Chief Business Economist at S&P Comments

  • “A second month of deteriorating business conditions in the euro area adds to the likelihood of GDP contracting in the third quarter. August saw output fall at an increased rate, with companies and households scaling back their expenditures amid the recent surge in inflation and growing uncertainty about the economic outlook. 
  • The deterioration is also becoming more broad-based, with services now joining manufacturing in reporting falling output. Having led the growth spurt earlier in the year, consumer-facing services such as travel, tourism and recreation are now reporting falling activity levels as the rising cost of living pushes households to cut back on nonessential spending. Financial services (notably including real estate) are meanwhile feeling the squeeze from higher interest rates, and industrial services are seeing their manufacturing customers reduce their spending amid the downturn in demand for goods.
  • “Although the overall rate of decline remains only modest, commensurate with GDP falling at a quarterly rate of just 0.1%, the latest data point to the economy undergoing its weakest spell for nine years, excluding the downturns seen during the height of the pandemic. 
  • “Looking ahead, an increased rate of loss of orders in August suggest that the downturn in business activity could gather pace in September, and firms are already cutting back on their hiring in the face of weaker than expected sales, surging costs and concerns about future growth prospects
  • “Firms’ costs and selling prices continue to rise at rates that had not been witnessed prior to the pandemic, underscoring the persistence of elevated inflationary pressures, but there is at least some good news in terms of the rates of increase having slowed further in August, suggesting the inflation peak has passed.”  

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