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Euro Zone Businesses Boomed in July but Confidence Weakened

LONDON (Reuters) - Euro zone business activity expanded at its fastest monthly pace in over two decades in July as the loosening of more COVID-19 restrictions gave a boost to services but fears of another wave of infections hit business confidence, a survey showed.

With vaccination rates accelerating and the burden on health care easing governments have lifted some of the curbs they imposed to try and contain the virus’ spread, unleashing pent-up demand.

IHS Markit’s Flash Composite Purchasing Managers’ Index, seen as a good guide to economic health, climbed to 60.6 in July from 59.5, its highest reading since July 2000. It was ahead of the 50-mark separating growth from contraction and a Reuters poll estimate for 60.0.

“The euro zone is enjoying a summer growth spurt as the loosening of virus-fighting restrictions in July has propelled growth to the fastest for 21 years,” said Chris Williamson, chief business economist at IHS Markit.

“The services sector in particular is enjoying the freedom of loosened COVID-19 containment measures and improved vaccination rates, especially in relation to hospitality, travel and tourism.”

A PMI covering the bloc’s dominant service industry jumped to 60.4 from 58.3, its highest since June 2006 and ahead of the Reuters poll forecast for 59.5.

Indicating that pace won’t slow anytime soon, demand was racing. The new business index rose to 59.7 from 58.7, one of the highest readings in the survey’s 23 year history.

Meanwhile, factories had another blistering month. The manufacturing PMI only dipped from June’s record high of 63.4 to 62.6. An index measuring output that feeds into the composite PMI fell to 60.9 from 62.6.

But the spread of the highly transmissible Delta variant of the coronavirus has further impacted already disrupted global supply chains and pushed prices for raw materials factories need soaring.

The input prices index held steady at June’s survey high of 88.5.

Rising infections and fears of another wave of the coronavirus put a dent in overall confidence. The composite future output index slumped to 67.8 from 71.9, its lowest February.

That chimes with European Commission data released on Thursday which showed consumer confidence fell this month.

Reporting by Jonathan Cable; Editing by Toby Chopra

Source: Reuters

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