Eurozone business growth is decreased in October as prices soared

October 25, 2021: -Growth in eurozone business activity has slowed down this month as firms face soaring costs due to supply-chain constraints. At the same time, the bloc’s dominant service industry struggled between ongoing COVID-19 concerns, a survey showed on Friday.

IHS Markit’s Flash Composite Purchasing Managers’ Index, a good gauge of economic health, decreased to a six-month low of 54.3 in October from 56.2 in September.

That matched the lowest forecast, which had predicted a more modest drop to 55.2 but was still comfortably above the 50-mark, separating growth from contraction.

“A sharp slowdown in October means the eurozone beginning the fourth quarter with the weakest growth momentum since April,” said Chris Williamson, a chief business economist at IHS Markit.

“While the overall rate of economic growth remains above the long-run average, for now, risks seem tilted to the downside for the near-term as the pandemic which continues to disrupt economies and push prices higher.”

Supply chain bottlenecks caused by the coronavirus pandemic, alongside a shortage of heavy goods vehicle increase rivers, meaning the input prices index jumped to 73.1 from 70.9, by far the highest since the survey starting in mid-1998.

A PMI for the services industry decreased to 54.7 from 56.4, its lowest since April, and less than a 55.5 Reuters poll forecast.

But firms took on staff at a fast-growing rate in more than 14 years—the employment index to 56.0 from 54.1.

Manufacturing activity is still robust, and the factory PMI only inched down from September’s 58.6 to 58.5. However, an index measuring output, which feeds into the composite PMI, dropped to 53.2 from 55.6, its lowest since June 2020.

Prices for the raw materials factories need to be increased at a record pace, and while manufacturers passed a few of those costs to customers, they could not transfer the whole burden. The output prices index climbed to 72.3 from 70.4, its highest since IHS Markit started collecting the data in 2002.

“Average selling prices for goods and services are rising at a rate unprecedented in over two decades, inevitably feed through to higher consumer prices in the coming months,” Williamson said.

That suggests the recent increase in inflation won’t be dissipating anytime soon, disputing the European Central Bank’s view the upswing would be transitory.