Brussels (awp/afp) – Economic activity in the euro zone contracted again in August in the private sector, down for the second consecutive month, weighed down by Germany and France against a backdrop of still high inflation , according to the composite PMI index published on Tuesday by S&P Global.
The index, calculated on the basis of business surveys, fell to 49.2, its lowest level for 18 months, against 49.9 in July and 52 in June. A figure above 50 signals an increase in activity, while an index below this threshold signals a contraction.
The manufacturing industry continues to contract sharply, with an index of 49.7, the lowest for 26 months, notably weighed down by the manufacture of basic materials and the automobile. Manufacturing production continues to plunge (46.5).
The “record” accumulation of inventories of finished goods, against a backdrop of deteriorating demand and falling sales, “holds little hope for an imminent improvement in production levels”, said Andrew Harker, economist at S&P Global.
Businesses are worried about soaring inflation, tensions over energy supplies, the darkening economic situation both in Europe and on their export markets, but also about the tightening of financial conditions in time when the European Central Bank raises its rates.
While the services sector held up better in August (with an index of 50.2, i.e. stagnant activity), it nevertheless recorded “strong contractions” in certain sectors, such as tourism or real estate: ” The sharp rise in the cost of living has cut short the post-pandemic recovery observed after the lifting of health restrictions”, comments Mr. Harker.
The rise in business costs, if it continued to rise sharply in August, is however tending to slow down, and could have repercussions on selling prices, but “this easing of inflationary pressures seems too late to really support demand” on the rest of the year, warns the economist.
Under these conditions, the job creation rate fell for the third consecutive month, to its lowest level in almost a year and a half.
The contraction in activity in August can be explained by the marked decline in Germany and France, while “activity continued to increase in the euro zone outside the Franco-German core, although at a very moderate,” notes S&P Global.
Germany experienced its biggest decline in activity in more than two years (to 47.6), against the backdrop of a sustained drop in production levels and an accelerated contraction in the services sector, while in France , global activity fell back for the first time in eighteen months (to 49.8), undermined by a sharp reduction in manufacturing output and the slowdown in the services sector.
afp/al