Eurozone business activity contracts again in August

Eurozone business activity contracted again in August as surging inflation and the energy crisis took their toll, according to a survey released on Monday.

The S&P/Global composite purchasing managers’ index declined to 48.9 from 49.9 in July, below consensus expectations and the earlier estimate of 49.2.

Meanwhile, the PMI for the services sector fell to 49.8 from 51.2, coming in below the preliminary estimate of 50.2 and the 50.0 mark that separates contraction from expansion.

The decline was particularly marked in Germany, the bloc’s largest economy. More generally, weakness in activity reflected falling demand, with new orders also down at a faster pace midway through the third quarter. Employment continued to rise, but the rate of job creation softened amid lower workloads and muted business confidence.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said: "A second month of deteriorating business conditions in the euro area adds to the likelihood of GDP contracting in the third quarter. August saw output fall at an increased rate, with companies and households scaling back their expenditures amid the recent surge in inflation and growing uncertainty about the economic outlook.

"The deterioration is also becoming more broad-based, with services now joining manufacturing in reporting falling output. Having led the growth spurt earlier in the year, consumer-facing services such as travel, tourism and recreation are now reporting falling activity levels as the rising cost of living pushes households to cut back on nonessential spending. Financial services (notably including real estate) are meanwhile feeling the squeeze from higher interest rates, and industrial services are seeing their manufacturing customers reduce their spending amid the downturn in demand for goods."

Elsewhere, figures from Eurostat showed that retail sales rose 0.3% on the month in July following a revised 1% drop the month before, coming in a touch below consensus expectations for 0.4% growth.

On the year, sales were down 0.9% following a revised 3.2% decline in June, and versus expectations for a 0.7% fall.