Eurozone Private Sector Shrinks Most In Nearly 3 Years

The euro area private sector economy contracted the most in nearly three years in August with broad based deterioration across the manufacturing and services sectors, results of the purchasing managers’ survey showed.

The HCOB composite output index fell to 46.7 in August from 48.6 in July, final data compiled by S&P Global revealed Tuesday. The initial score was 47.0 for August.

The below-50 score suggested that the private sector shrank for the third consecutive month. Moreover, output decreased at the fastest rate since November 2020.

Data showed that output declined in both the services and manufacturing sectors. The service sector ended a seven-month sequence of growth and goods production dropped for the fifth straight month.

The services Purchasing Managers’ Index, or PMI, posted 47.9, down from 50.9 in July. Moreover, the pace of decline was the steepest since February 2021. The score was also below the initial estimate of 48.3.

“The eurozone didn’t slip into recession in the first part of the year, but the second half will present a greater challenge,” Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, said.

“The disappointing numbers contributed to a downward revision of our GDP nowcast which stands now at -0.1 percent for the third quarter,” the economist added.

The survey showed that the near-term outlook deteriorated in August as new business dropped for the third month in a row. Both manufacturers and service providers reported steeper declines.

Exports of both goods and services rose at one of the fastest rates on record. The twelve-month horizon improved slightly since July.

Manufacturers’ backlogs declined continuously since June 2022 and outstanding work at service providers decreased in seven out of last twelve months.

With declines in both new and outstanding businesses gathering pace, data showed a near-stalling in employment growth. Jobs increased at the slowest pace in the current thirty-one consecutive month of expansion.

Input costs grew at the fastest pace in three months in August. The overall output price inflation eased to a two-and-a-half year low, but remained historically strong.

By nation, Germany and France posted the steepest declines in output, while more moderate falls were reported in Italy and Spain.

The downturn in the German private sector deepened in August with a renewed contraction in services activity and an accelerated fall in manufacturing output.

The composite output index posted 44.6 in August, down from 48.5 in July. The score signaled the biggest contraction since May 2020 and the reading was slightly below the flash score of 44.7.

The services PMI declined to 47.3 in August from 52.3 in the previous month. The flash score was 47.3.

France’s private sector output fell for the third successive month in August. The composite output index registered 46.0 signaling the biggest fall in private sector activity since November 2020. The reading was down from 46.6 in July. The flash score was 46.6.

The services PMI slid more than initially estimated to 46.0 from 47.1 in the previous month. The score suggested the fastest decline in activity since February 2021.

Spain’s private sector moved into the contraction territory in August. The composite output index registered 48.6 in August, down from 51.7 in July. The services PMI dropped to 49.3 from 52.8 a month ago.

Italy’s private sector output shrank for the third consecutive month in August. The composite PMI recorded 48.2, down from 48.9 in July. The services business activity index slipped to 49.8 from 51.5 in the previous month.

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