Eurozone business activity grew at the fastest rate in 15 years in June this year as the economy re-opened further from virus-fighting restrictions and vaccine progress boosted confidence, according to IHS Markit. Prices charged for goods and services rose at an unprecedented rate, however, as demand continued to outstrip supply, the UK-based company recently said.
The headline IHS Markit Eurozone composite purchasing managers index (PMI) increased from 57.1 in May to 59.2 in June, its highest since June 2006, according to the preliminary 'flash' reading.Eurozone business activity grew at the fastest rate in 15 years in June this year as the economy re-opened further from virus-fighting restrictions and vaccine progress boosted confidence, according to IHS Markit. Prices charged for goods and services rose at an unprecedented rate, however, as demand continued to outstrip supply, the company recently said.#
The latest reading indicated a fourth successive month of accelerating output growth as the economy continued to open up from COVID-19 related restrictions, the company said in a press release.
June's improving PMI numbers come at a time in which virus containment measures have been eased to the lowest since last September. These restrictions are also set to be reduced further in July to the lowest since the pandemic began.
Despite firms taking on extra staff at the sharpest rate for almost three years, June saw a record rise in backlogs of work, a further near-record lengthening of supply chains and the increasingly widespread depletion of warehouse inventories.
A further improvement in demand was also recorded, as new orders growth likewise accelerated to the fastest since June 2006.
The data, therefore, set the scene for an impressive expansion of gross domestic product (GDP) in the second quarter to be followed by even stronger growth in the third quarter.
The output index has an historically close relationship with quarterly eurozone GDP growth, albeit with the survey understating the collapse and rebound in GDP during the pandemic.
As business conditions return to normal in 2021, the relationship of the PMI with GDP will therefore likely be fully re-established. It is, therefore, also important to note that the current PMI readings may likewise understate the second quarter 2021 GDP rebound, but the key message from the surveys is that the economy is once again growing strongly, and that the upturn is becoming increasingly broad-based, spreading from manufacturing to encompass more service sectors, especially consumer-facing firms.
Although manufacturing continued to lead the upturn, reporting a twelfth successive month of output growth with the rate of expansion picking up again, it was the service sector that again reported the biggest improvement in performance, with business activity growth accelerating to a pace not exceeded since July 2007.
Vaccination programmes are also making impressive progress. 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, fuelled greater spending and encouraged hiring.
Capacity constraints and shortages
However, the strength of the upturn - both within Europe and globally - means firms are struggling to meet demand, suffering shortages of both raw materials and staff. Under these conditions, firms' pricing power will continue to build, inevitably putting further upward pressure on inflation in the coming months.
Despite a rise in employment during the month, with job gains in both manufacturing and services hitting the highest since 2018, firms reported the largest accumulation of backlogs of work since data were first available in 2002.
Average input prices rose in June at a rate exceeded only once (in September 2000) over the 23-year survey history. A record increase in manufacturers' material prices was accompanied by the steepest increase in service sector costs since July 2008, the latter reflecting widespread reports of higher supplier prices, increased fuel and transport costs plus rising wage pressures.
Average prices charged for goods and services meanwhile rose at by far the fastest pace since comparable data for both sectors were first available in 2002, with prices rising in each sector at rates not exceeded for approximately two decades.
Fibre2Fashion News Desk (DS)
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