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LONDON – The eurozone economy lost some of its momentum in August but remains on a solid growth path in the third quarter of this year, according to preliminary data released on Monday.
IHS Markit’s composite flash PMI for the euro area, which studies activity in both manufacturing and services, hit a two-month low of 59.5 in August, compared with 60.2 in July. A reading above 50 means an expansion of economic activity.
“Encouragement comes from a second month of job creation, which is the strongest in 21 years, said in a statement.
The latest business data comes as many consumers in the area enjoy the lifting of restrictions related to Covid, which has fueled post-pandemic economic recovery.
Last month’s growth estimates showed that the euro area had recovered from a technical recession (defined as two consecutive quarters of economic contraction) by growing 2% in the second quarter of this year.
These data releases are important as the European Central Bank is due to meet next month and some of its members are pushing for talks on reducing ongoing incentives.
However, there are some concerns about supply chain issues and higher inflation.
“The concern is that we are seeing some upside in wage growth due to labor gains that could lead to higher inflation and that delivery delays from Asia in particular are likely to last for some time,” Williamson added.
As a result, the momentum in the manufacturing sector slowed more than in the service sector. The former hit a six-month low in August while services fell to a two-month low.
Speaking to CNBC’s Street Signs Europe on Monday, Williamson said supply chain problems are no longer as widespread as they were before, but they are still holding back the growth of manufacturing activity.
Nonetheless, he said, “Those numbers are still very high in terms of these PMI growth rates. It is very rare for these indices to stay at this level for long simply because there is such rapid growth that a cool down has nothing to really worry about. “
French companies could not escape the slowdown in August.
The composite flash PMI for the country fell from 56.6 in July to 55.9 in August, a 4-month low. However, the data continues to point to solid growth in the third quarter of the year.
“Despite some of the supply-side challenges companies face, it is encouraging to see that PMI data consistently signals robust expansion,” said Joe Hayes, chief economist at IHS Markit, in a statement.
He added, “As we move towards the middle of the third quarter, the survey data so far suggests that we could see another decent increase in the corresponding GDP figure.”
In Germany, too, where federal elections are due next month, business activity slid to a two-month low.
The Flash Composite Index for Germany was 60.6 in August, after 62.4 in July.
“Although growth has slowed since July, the data still suggests economic growth will be stronger in the third quarter than the preliminary 1.5% increase in GDP in the three months to June,” said Phil Smith, associate director at IHS Markit in a statement.
He added, however, that “many manufacturers continue to be hampered by material and component shortages and delivery delays, which are likely to remain limiting factors for the coming months.”