Eurozone Private Sector Recovery Loses Momentum

The euro area private sector recovery lost momentum in August amid fears of another wave of coronavirus infections, final data from IHS Markit showed on Thursday.

Another report from Eurostat showed that retail sales fell unexpectedly in July on weak non-food products turnover.

The composite output index fell to 51.9 in August from 54.9 in July. However, the score was above the neutral 50.0 and the flash estimate of 51.6.

There was a divergence in performance between manufacturing and service sectors. Manufacturing output grew the most since April 2018, while the growth in services eased markedly from July.

The services Purchasing Managers’ Index dropped to 50.5 in August from 54.7 a month ago. Nonetheless, this was above the flash 50.1.

Service sector companies across the Eurozone saw growth of business activity grind almost to a halt in August, fueling worries that the post-lockdown rebound has started to fade amid ongoing social distancing restrictions linked to Covid-19, Chris Williamson, chief business economist at IHS Markit, said.

Williamson said the survey highlights how policymakers will need to remain focused firmly on sustaining the recovery further heading into the year.

At the composite level, new business grew at a slower pace as export sales extended the current sequence of contraction to nearly two years.

Companies reduced their employment numbers for the sixth straight month in August.

On the price front, the survey showed that input price inflation reached its highest since February, while output charges continued to fall due to competitive pressures and the challenging business environment.

Looking to the year ahead, business confidence remained in positive territory in August. Nonetheless, sentiment weakened slightly from July.

Germany was the best performing country in August, although overall growth was a little softer than the previous month. France also reported gain in activity but the rate of expansion was much slower than in July.

In contrast, subdued service sector performances meant that Italy and Spain posted outright declines in private sector activity in August.

Due to the slowdown in services activity, Germany’s final composite output index fell to 54.4 from 55.3 a month ago. The flash estimate was 53.7.

The services PMI came in at 52.5 versus a 13-month high of 55.6 in the previous month. The flash score was 50.8.

In France, the private sector growth moderated to the lowest in the current three-month sequence of expansion. The final composite PMI decreased to 51.6 from 57.3 in Jul and this was slightly weaker than the flash 51.7.

At 51.5, the final services PMI was below 57.3 in July and the flash 51.9.

Italy’s composite output index fell below the neutral 50.0 mark in August to signal a renewed reduction in private sector output. The index came in at 49.5 compared to 52.5 in July. The score was forecast to remain unchanged at 52.5. The services PMI dropped to 47.1 from 51.6 in July.

Spain’s private sector also returned to the contraction zone in August. The composite PMI fell to 48.4 in August from 52.8 in July. The services PMI came in at 47.7 versus 51.9 a month ago.

Official data showed that retail sales in the euro area dropped 1.3 percent on month in July, following a 5.3 percent rise in June. This was the first drop in three months and confounded expectations for an increase of 1.5 percent.

Sales of food, drinks and tobacco remained flat, while non-food product sales decreased 2.9 percent in July. At the same time, sales of automotive fuel in specialized stores advanced 4.3 percent.

On a yearly basis, growth in retail sales slowed to 0.4 percent from 1.3 percent in June. Economists had forecast an annual growth of 3.5 percent.

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