Eurozone private sector growth hits 15 year high, UK output slows

Author: Tom Brown

2021/06/23

LONDON (ICIS)--Eurozone private sector growth in June rose to its highest level since mid-2006 as lockdown restrictions ease and public confidence in vaccine programmes grows, according to IHS Markit.

The uptick is driving an “unprecedented” rise in pricing, according to  purchasing managers’ index (PMI) data from IHS released on Wednesday.

Manufacturing growth remained unchanged month on month at a high level.  A recovery in service sector activity to 58, the highest level in three and a half years, helped to drive total output growth to the highest level in 15 years.

UK composite PMI levels slipped to their lowest since April 2021, weighed in part by supply chain price pressure,. The UK levels remained above eurozone levels, despite the sharp uptick in economic activity in the bloc in June.

A PMI score of above 50.0 denotes growth.

Flash PMI indices
(below 50 = contraction)
June   2021 May 2021 Trend
Eurozone Composite 59.2 57.1 180-month high
UK composite 61.7 62.9 Two-month low
Eurozone manufacturing 63.1 63.1 Unchanged
UK manufacturing 64.2 65.6 Two-month low

EUROZONE RALLY

June saw a record rise in backlogs of work for firms in the region as order books continued to swell, despite the highest rate of hiring since mid-2018, with supply chains continuing to lengthen and the depletion of available warehouse space, according to Markit.

Business confidence in the economic environment rose to the highest level in almost a decade, despite intensifying supply chain disruption, logistics costs, and the impact of the semiconductor chip shortage on the automotive and electronics sectors.

German manufacturing led the surge, with France continuing to lag behind much of the eurozone in order book volumes.

The activity seen during the month and current economic momentum across service and industrial sectors points to a strong end to the second quarter of the year in GDP terms and even brighter prospects for the next three months, according to Markit chief economist Chris Williamson.

“Virus containment measures have been eased to the lowest since last September and are set to be reduced further in July to the lowest since the pandemic began. Vaccination programmes are also making impressive progress,” he said.

“This has not only facilitated greater activity in the service sector in particular, but the brightening prospect of life increasingly returning to normal has also pushed confidence to an all-time high, fueled greater spending and encouraged hiring,” he added.

UK PLATEAUS
With UK growth remaining strong, despite the delay to a full easing of lockdown measures until July as a result of Delta COVID-19 variant’s capacity to evade protections afforded by the first dose of vaccines.

Despite the slight slowdown in growth levels month on month in June,  inflation and input costs rose and supply chain disruptions continued to push up prices. Business activity remained at some of the strongest levels in the country since 1998, according to Markit.

Manufacturing and service sector executives remained largely bullish that output will increase over the next 12 months. But overall sentiment eased to the lowest levels in five months, as the Delta variant became the default COVID-19 strain in most cases and case numbers rose to almost 12,000 a day.

The slight easing in composite PMI levels for the UK indicates that growth rates may have plateaued, according to Williamson, while inflation, which reached 2% in May and is expected to rise higher through the year, is becoming a more tangible concern to firms.

"Inflation worries have continued to intensify,” he said. “Record levels of the survey’s price gauges and the further development of capacity constraints hint strongly that consumer price inflation has much further to rise after already breaching the Bank of England’s 2% target in May.”

"Although businesses also reported a record increase in employment during June, many firms continued to report a lack of capacity to meet the recent surge in demand, often due to staff and supply shortages,” he added.

Focus article by Tom Brown.

(Thumbnail picture: An FFP2 mask production facility in Wuppertal, Germany. Source: Photo by Sascha Steinbach/POOL/EPA-EFE/Shutterstock