Eurozone Economic Activity Grows Strongest in 21 Years

Economic activity in the eurozone will grow at its strongest pace in 21 years in July, as the recovery from the corona crisis and the further easing of corona measures continues. This is according to preliminary figures from the British market researcher Markit. Concerns in the business community about the Delta variant are increasing, however.

 

Markit’s composite Purchasing Managers Index, which reflects economic activity in the manufacturing and services sectors, rose to a reading of 60.6. That is the highest level since July 2000. A reading of 50 or more indicates growth, below that, contraction.

Particularly in the services sector, which includes hospitality, retail and tourism, business is improving as economies continue to reopen. As a result, people are spending more on retail and hospitality and are also travelling more.

Euro-area manufacturing growth slowed somewhat compared to June. This is mainly due to the problems in the supply chain, which slow down production. Furthermore, industrial companies are struggling to meet the strong demand.

“The eurozone is going through a summer growth spurt thanks to the easing of corona measures,” said Markit chief economist Chris Williamson. However, he did indicate that the Delta variant poses risks because new outbreaks could exacerbate supply problems, resulting in even higher prices.

The shortages of parts and higher raw material prices are driving costs in the business community. These costs are then passed on to customers, which in turn leads to higher consumer prices. This higher inflation may induce the European Central Bank (ECB) to reduce its support packages against the corona crisis more quickly and to raise interest rates sooner.

In its interest rate decision on Thursday, the ECB hinted at more extended support to support the recovery from the crisis. However, the central bankers emphasise that they are okay with inflation temporarily rising a bit before they start phasing out their support. In fact, growth in UK economic activity weakened in July compared to a month earlier due to shortages of staff and raw materials, Markit said.

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