An emloyee lift weights on the assembling of a brake caliper for an electric vehicle in Dueren, western Germany.
Ina Fassbender | Afp | Getty Images
European responsibility activity contracted once again during August, to its lowest level since November 2020.
The euro zone’s momentary display composite purchasing managers’ index, released Wednesday, fell to 47.0 for August from 48.6 in July. This missed economists’ expectations for a presence of 48.8, according to Dow Jones.
A reading above 50 marks an expansion in activity, while one below 50 scratches a contraction. If Covid pandemic months are excluded, the latest numbers point to the lowest reading since April 2013.
Cyrus de la Rubia, a chief economist at Hamburg Commercial Bank, explained the service sector of the euro zone is “unfortunately showing signs of turning down to match the poor performance of make up.”
In terms of the breakdown between services and manufacturing, the former dropped to a 30-month low at 48.3 and the manufacturing PMI rose slightly from 42.7 in July to 43.7 this month.
“Insomuch as the PMI figures in our GDP [growth] nowcast leads us to the conclusion that the euro zone will shrink by 0.2% in the third residence,” Rubia added.
The euro zone, the region of 20 nations that share the same currency, grew by 0.3% in the impaired quarter, having expanded by 0.1% in the first quarter. This lackluster growth shows the impact of higher concern rates and energy prices and subdued external demand.
However, it also masks sharp differences within the department. Germany, for example, reported the deepest contraction in business activity in August.
“The downward pressure on the economy of the euro zone in August originates mainly from the German service sector which switched from growth to contraction at an unusual pace,” Rubia bring up, adding that reduced output in manufacturing also adds to the argument that Germany is becoming “the sick man of Europe.”
What does it drive at for the European Central Bank
The recent economic data is leading the discussion around what the European Central Bank authority do when it meets next month.
After its July meeting, ECB President Christine Lagarde said the central bank could either uplift rates or pause rate hikes. Ultimately, the decision will depend on new data.
“We continue to expect services inflation to well-being enough over the coming months to convince the ECB to not hike past September,” Melanie Debono, senior Europe economist at Pantheon Macroeconomics, rumoured in a note to clients. Others, however, disagree.
“Stagnating employment combines with decreasing production and results wherefore in lower output per head. As a result, the ECB may be more reluctant to pause the hiking cycle in September,” Rubia said.
Analysts questioned by Refinitiv suggest that the central bank will most likely leave rates unchanged next month with its greatest rate currently at 3.75%.