Bottlenecks hinder September economic growth in eurozone

Author: Morgan Condon

2021/09/23

LONDON (ICIS)--Supply bottlenecks have slowed the rate of economic growth in the eurozone, impacting both manufacturing and services sectors in September, following a 15-year high in July.

The latest flash data of the Purchasing Managers’ Index (PMI) released by IHS Markit on Thursday, indicated that while considerably above contraction, the combined metric for the sectors hit a five-month low.

Final PMI
(below 50 = contraction)
September flash August final August flash Trend
Eurozone composite 56.1 59.0 59.5 5-month low
UK composite 54.1 54.8 n/a 7-month low

This trend was echoed in the UK, with growth hitting its weakest point in seven months, although the decline was less pronounced than in the eurozone, and shaped by the same driver of supply constraints.

Business expectations for the coming year also eroded on concerns of increased coronavirus infection rates with the spread of the Delta variant which could continue to shape market fundamentals.

Company costs rose at the fastest rate in 21 years as demand continued to outstrip supply, with prices being passed through from the manufacturing to the services sector.

Frequently increased costs were passed down to customers, with inflationary pressures rising to the third-highest rate in 20 years in September, only surpassed by June and July levels.

Manufacturing production made the smallest gains since January, with new orders increasing at the slowest pace since April after significant increases in the second quarter.

New export order growth also fell to the lowest point since February for manufacturing, with modest increases recorded in the services sector for this segment.

Backlogs of uncompleted orders increased significantly on the back of supply pressures, and delivery times continued to grow at a rate exceeding anything seen prior to the pandemic.

Employment slipped to a four-month low in both sectors, as firms were unsure of how long strong demand would persist against a backdrop of tight supply.

Growth slowed significantly in Germany, reaching its lowest point since February, with activity in France reaching its lowest point since April, but remained stronger in the rest of the eurozone.

“The composite PMI fell by more than expected in September,” said analysts at Oxford Economics, citing the supply chain issues as the key reason for slowing the rate of growth, and will remain a driver for the rest of the year.

“Declines in the more forward-looking indicators chime with our assessment that eurozone GDP growth is set to moderate further in the fourth quarter to 1%, down from 1.8% in the third quarter.”

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