Eurozone Private Sector Shrinks For Second Month

Eurozone private sector contracted for the second straight month in August as the downturn in manufacturing continued and the service sector ground to a near-halt, flash survey results from S&P Global showed on Tuesday.

The flash composite output index slid to 49.2 in August from 49.9 in July. However, the reading was slightly above the expected level of 49.0.

A score below 50.0 indicates that the private sector experienced a contraction. This was the second consecutive fall following a 16-month period of expansion.

The remainder of 2022 is looking to be one of struggle for firms across the eurozone, Andrew Harker, economics director at S&P Global Market Intelligence said.

The overall decline was driven by a contraction in the manufacturing sector, where output eased for the third month in a row. At the same time, service sector growth almost halted as cost of living pressures sapped demand.

At 49.7, the manufacturing Purchasing Managers’ Index came in at a 26-month low compared to 49.8 in July. Nonetheless, the score was above economists’ forecast of 49.0.

The services PMI fell to a 17-month low of 50.2 from 51.2 in the previous month. The expected reading was 50.5.

New business was down in both the manufacturing and service sectors. Strong inflationary pressures were again key to the reduction in new orders, with both input costs and output prices continuing to climb rapidly. The pace of input price inflation was the softest in close to a year and output charge inflation was the slowest in the year-to-date.

Confidence among firms remained relatively muted amid worries of an economic downturn.

This muted confidence, alongside falling new orders and a lack of pressure on capacity meant that firms moderated their hiring activities. The rate of job creation eased for the third month in a row to the softest since March 2021.

Among the biggest two economies, Germany logged the sharpest decline in output since June 2020 as manufacturing output continued its downward trend amid an accelerated contraction in services activity.

The composite output index dropped further into sub-50 contraction territory in August, down from 48.1 in July to 47.6. The expected score was 47.4.

The services PMI came in at an 18-month low of 48.2 versus 49.7 in July and economists’ forecast of 49.0. Meanwhile, the factory PMI unexpectedly rose to 49.8 from 49.3. The reading was seen at 48.2.

Elsewhere, activity in France decreased for the first time in a year-and-a-half, reflective of a sharp drop in manufacturing output and softer growth of services activity.

At 49.8, France’s flash composite output index was down from 51.7 in July and signaled the first reduction in private sector output levels across France since February 2021. The reading was forecast to drop to 50.8.

The services PMI slid to a 16-month low of 51.0 from 53.2 in July. The score was forecast to ease marginally to 53.0.

At the same time, the manufacturing PMI came in at 49.0, in line with expectations. The score declined from 49.5 in July and hit the lowest in 27 months.

Outside of the ‘big-two’, output continued to increase, albeit only marginally, the survey showed.

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