European leading indicators confirm the industrial slowdown and warn of an escalation in inflation in the coming months. The composite PMI for the euro area fell for the third consecutive month to 54.3 – the estimate was 55.2 – in October, 1.9 points less than in September and 5.9 points less than the 15-year high reached in July.
The drop was mainly due to the manufacturing sector, as input shortages and supply bottlenecks weigh on factory output, especially in the automotive sector. At the same time, pressures on producer prices show no signs of abating and are increasingly being passed on to consumers.
However, analysts see a more positive situation in the long term. “While at the moment the overall economic growth rate remains above the long-term average, there are downside risks in the short term, as the pandemic continues to hamper economic activity and drive prices higher,” explains Chris Williamson, chief economist at IHS Markit. “After strong expansions in the second and third quarters, GDP growth appears to be comparatively much weaker in the fourth quarter,” he adds.
The services PMI sub-index fell to 54.7 in October, 1.7 points less than in September. The drop came despite a rebound in new orders and was due to a worse performance in the travel and leisure sectors. This reflects, to some extent, that the summer season is coming to an end, but it also points to renewed consumer fears about the next waves of the Covid-19 pandemic.
In October, the composite PMIs for Germany and France fell to 52 and 54.7, 3.5 points and 0.7 points less than in September, respectively. However, the factors were different. On the one hand, in Germany the decline was mainly due to a substantial and unexpected fall in the services PMI (from 56.2 to 52.4 in October), while its performance was strong in France, with a services PMI that rose 0.4 points to 56.6.
“German services are starting to suffer from the indirect effects of the supply chain in the manufacturing sectorsuch as input shortages and high prices for raw materials and energy, “explains Mateusz Urban, an economist at Oxford Economics.”
By contrast, service activity in France was supported by strong consumer demand , while the manufacturing sector continued to experience problems with logistics, transport and input cost inflation, “he adds. Urban highlights that” going forward, we expect the service sector to continue to outperform industry in Difficulties given the strong consumer outlook supporting the former throughout the fourth quarter and into early 2022. “
In terms of employment, growth increased in the two sectors studied . The industrial sector posted lower results than recent highs due to a shortage of materials.
Product shortage
The Eurozone PMI report highlights shortages as the main factor responsible for the increase in prices of many products and services in October, leading to a record increase in the study of the costs of firms. The manufacturing sector saw an unprecedented increase in input costs while costs in the service sector increased at the fastest pace since September 2000.
For its part, sales price inflation accelerated as firms passed on increased costs to their customers, reaching its fastest pace in nearly two decades of comparable historical survey data in both manufacturing and manufacturing. in the service sector.
“The persistent pandemic keeps supply chain delays a major concern, limiting production and driving prices even higher in both the manufacturing and service sectors,” said IHS Markit Chief Economist. , Chris Williamson. ” Average sales prices of products and services are increasing at rates unprecedented in more than two decades, a factor that will inevitably translate into an increase in consumer prices in the coming months,” he adds.
