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Eurozone recovery hit by supply chain chaos

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BMW factory
BMW factory

The eurozone’s economic recovery may have passed its peak as a closely watched indicator of activity showed slowing momentum amid chaos across global supply chains.

Growth in the services sector outpaced the manufacturing expansion for the first time since the start of the pandemic according to IHS Markit, buoyed by reopening activity across the continent.

The "flash" composite purchasing managers’ index reading for the bloc dipped slightly to a still-solid 59.5 this month, coming off a 15-year high the previous month. Any reading above 50 indicates expansion compared with the previous month.

Hiring continued to surge across the eurozone, holding at the 21-year high reached in July.

Concerns over the spread of the delta variant dampened sentiment, however, while potential growth for manufacturers was choked by long-running supply chain constraints.

Supply of many key products is running low amid “near-unprecedented” delays and bumper backlogs, with delivery times continuing to lengthen at an alarming rate.

Chris Williamson, chief business economist at IHS Markit, said: “Supply chain delays continue to wreak havoc, however, leaving companies frequently unable to meet demand and pushing firms’ costs higher.

“These costs, combined with surging demand, led to another near-record increase in average selling prices for goods and services, though there are some welcome signs that these inflationary pressures may have peaked for now.”

Macron - REUTERS/Stephane Mahe/Pool
Macron - REUTERS/Stephane Mahe/Pool

ING’s Bert Colijn said the bloc should still post solid growth in the third quarter despite concerns.

“The eurozone economy is firing on all cylinders again as reopening has had the expected positive effect on growth,” he said. “Concerns about the impact of the delta variant and input shortages remain but have not derailed the rebound thus far.”

Growth was spearheaded by Germany, although the country suffered a “marked easing” in manufacturing activity, taking its PMI off the 23-year high hit in July.

In France, the expansion slowed to a four-month low, marking a second consecutive month of diminishing pace.

IHS Markit’s Joe Hayes said French President Emmanuel Macron’s push for vaccine certificates were weighing on growth.

“On top of the heavy supply chain issues, some survey respondents noted that there had been some adverse consequences on new business due to the pass sanitaire, requiring proof of a double vaccination or low risk of carrying Covid-19 infection,” he said.

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