Euro zone business growth feels impact of supply issues, inflation - PMI

Business growth in the euro zone during September held up, but was hit by ongoing supply-chain problems and increased inflationary pressures which show no sign of easing, a survey showed on Tuesday.

IHS Markit’s final composite Purchasing Managers’ Index (PMI), used as guide to gauge economic health, sank to 56.2 last month from 59.0 in August.

The reading was well above the 50 mark that indicates growth from contraction and just above a 56.1 “flash” estimate.

Demand growth fell to a five-month low as firms passed on part of rising input costs, which rose at a record pace, to consumers. The composite output prices index rose to 59.1 from 58.3.

“The current economic situation in the euro zone is an unwelcome mix of rising price pressures but slower growth. Both are linked to supply shortages, especially in manufacturing, which has seen a steeper fall in output growth than services,” said IHS Markit chief business economist Chris Williamson.

“Although for now the overall rate of expansion remains relatively solid by historical standards, the economy enters the final quarter of the year on a slowing growth trajectory.”

Williamson added that a fall in business confidence to the lowest since February “adds further downside risks to the outlook".

A PMI reading for the services industry fell to 56.4 from 59.0, its lowest since May, while the new business index dropped to 55.3 from 57.9.

“The service sector is also reporting a marked cooling of demand growth which can be less easily explained by shortages, and is in part linked to customers being deterred by concerns over the persistence of the pandemic and by higher prices as well as some moderation of spending after the initial reopening of the economy,” Williamson said.