Daily Management Review

Euro Zone July Businesses Activity Grows At Record Pace


Euro Zone July Businesses Activity Grows At Record Pace
The pace of business activity expansion in July in the euro zone was the fastest in more than two decades as governments relaxed more of Covid-19 restrictions resulting in a boost to the services industry, showed a survey.
However, it also showed a decline in business confidence because of concerns of another wave of the pandemic hitting the region.
Various governments in the region have lifted some of the curbs they imposed to try and contain the spread of the pandemic as the speed of vaccinations surged and government burden for health care eased. The relaxation of restrictions in July resulted in pent up demand being unleashed in the region.
In July, the IHS Markit's Flash Composite Purchasing Managers' Index, viewed as a good indicator of economic health, increased to 60.6 compared to 59.5 in the previous month. That was the highest growth in the index since July 2000. It was ahead of the 50-mark separating growth from contraction and a Reuters poll estimate for 60.0.
"Better than expected PMIs confirm the strong rebound expected for 3Q, as reopening services make up for the slight decline in manufacturing output due to supply chain problems," said Bert Colijn at ING.
"Easing restriction measures are boosting service sector activity at the moment, but concerns about the spread of the Delta variant resulted in a somewhat weaker business outlook for the year ahead," Colijn said.
The service industry of the euro zone covered by a PMI increased in July to 60.4 from 58.3 in the previous month which was also the highest growth of the PMI since June of 2006.
There was also growth in demand which indicated that the pace of business activity growth would not slow down anytime soon.  The new business index rose to 59.7 from 58.7, one of the highest readings in the survey's 23 year history.
Strong demand in Germany, the biggest largest economy of Europe, partly because of the easing of virus containment measures, indicated a continued strong recovery in the economy and the country’s PMI hit the highest mark in almost a quarter of a century.
However, there was a weakening of business activity in France with its PMI dropping to a three-month low, primarily because of shortages of materials and delays in transportation of materials to companies.
Factory activity was also robust in the region in July with the manufacturing PMI dropping only slightly from the record high in June of 63.4 to 62.6. An index measuring output that feeds into the composite PMI fell to 60.9 from 62.6.
But the already disrupted global supply chains were further disturbed by the spread of the highly transmissible Delta variant of the coronavirus which pushed up prices of raw mat6erials even in the face of soaring demand for them by factories.
The input prices index held steady at June's survey high of 88.5.
"While actual and prospective activity trends remain very solid, it is clear that the recent increase in new coronavirus trends and the spread of the more transmissible Delta variant are leaving a mark on euro zone confidence," said Ricardo Amaro at Oxford Economics.