Eurozone businesses reported their fastest expansion for more than two decades in July, amid supply constraints, labour shortages and concerns over the Delta variant of Covid-19, according to an IHS Markit survey of purchasing managers published on July 26.
IHS Markit’s eurozone flash PMI increased to 60.6 in July, up from 59.5 in June, as economies continued to reopen and vaccine rollouts bolstered confidence. A score over 50 in the PMI indicates that a majority of businesses reported an expansion in activity from the previous month.
The 21-year-high index score meant the Eurozone saw the fastest expansion of all surveyed locations for the first time since the pandemic began, posting growth above the US, the UK, Japan and Australia. But with the strongest rise in service-sector activity for 15 years, prices charged for goods and services soared.
Business confidence also took a knock from rising concerns over the Delta variant, with sentiment for the year ahead falling to its lowest level for five months.
Manufacturers in the eurozone reported rapid growth too, according to a separate survey of purchasing managers, with a PMI score of 62.6 in July, down from a record 62.8 a month earlier. Sharp expansions were reported across consumer, intermediate and investment goods makers, the last of which posted the fastest upturn of the three.
Chris Williamson, chief business economist at IHS Markit, said in a statement on August 2, that the slight cooling of eurozone manufacturing growth was not a major cause for concern, but capacity constraints and work backlogs were at record levels.
“Manufacturers and their suppliers are struggling to raise production fast enough to meet demand, driving prices ever higher,” added Mr Williamson. “The July survey showed inflows of new orders outstripping production to an extent unprecedented in the survey’s 24-year history.”
In response, Eurozone manufacturers hired new workers at a record pace, with job creation particularly pronounced in Germany and Austria, according to the survey of purchasing managers.
Eurozone manufacturers also continued to have an optimistic outlook for the next 12 months, in line with the global economic recovery and business adjusting to fewer pandemic-related restrictions. But like other businesses, manufacturers worry about the Delta variant and its potential impact on operations.
“Mounting concerns about how the Delta variant poses further threats to supply chains and staff availability have helped push future growth expectations to the lowest so far this year,” said Mr Williamson.