European PMIs for August show steep downturn

An emloyee works on the assembling of a brake caliper for an electric vehicle in Dueren, western Germany.

Ina Fassbender | Afp | Getty Images

European business activity contracted once again during August, to its lowest level since November 2020.

The euro zone’s flash composite Purchasing Managers’ Index, released Wednesday,¬†fell to 47.0 for August from 48.6 in July. This missed economists’ expectations for a figure of 48.8, according to Dow Jones.

A reading above 50 marks an expansion in activity, while one below 50 marks a contraction. If pandemic months are excluded, the latest numbers point to the lowest reading since April 2013.

Cyrus de la Rubia, a chief economist at Hamburg Commercial Bank, said the service sector of the euro zone is “unfortunately showing signs of turning down to match the poor performance of manufacturing.”

In terms of the breakdown between services and manufacturing, the former dropped to a 30-month low at 48.3 and the manufacturing PMI rose slightly from 42.7 in July to 43.7 this month.

“Considering the PMI figures in our GDP [growth] nowcast leads us to the conclusion that the euro zone will shrink by 0.2% in the third quarter,” Rubia added.

PMIs show euro zone support from services sector has faded, economist says

The euro zone, the region of 20 nations that share the same euro currency, grew by 0.3% in the second quarter, having grown by 0.1% in the first quarter. This lackluster growth shows the impact of higher interest rates and energy prices and subdued external demand.

However, it also masks sharp differences within the region. Germany, for example, reported the deepest contraction in business activity in August.

“The downward pressure on the economy of the euro zone in August stems mainly from the German service sector which switched from growth to contraction at an unusual pace,” Rubia said, adding that reduced output in manufacturing also adds to the argument that Germany is becoming “the sick man of Europe.”

What does it mean for the European Central Bank

We expect Germany will be in a mild recession this year, says Commerzbank CFO

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