Eurozone businesses expand at fastest rate in 21 years

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Eurozone businesses are reporting the fastest expansion in over two decades, fueling hopes of a rapid rebound this summer despite the spread of the Delta variant.

IHS Markit’s flash composite purchasing managers’ index — based on a survey of eurozone businesses — rose to 60.6 in July, up from 59.5 in June. The rise indicates that Europe’s economy is growing at a healthy rate after Covid-19 lockdowns were lifted in the spring.

It is the highest PMI reading for the eurozone since July 2000 and narrowly outstripped the expectations of economists polled by Reuters, who had predicted a reading of 60. A score over 50 indicates a majority of businesses are reporting an expansion from the previous month.

However, the survey also found that many companies are struggling to keep up with rising demand, which is causing shortages of materials, such as semiconductors and steel, and drove up the selling prices of goods and services.

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“The eurozone 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.

“Supply chain delays remain a major concern for manufacturing, however, constraining production and pushing firms’ costs higher,” he added.

Line chart of Purchasing managers index showing Sharp rebound in eurozone business activity

Services businesses in the eurozone reported the strongest rise in activity for 15 years, as they benefited from the easing of lockdown measures and a pick-up in consumer spending. The services PMI rose to 60.4, up from 58.3 in the previous month.

Meanwhile, the PMI for manufacturing dipped to a four-month low of 62.6, which reflected the supply chain constraints and lengthening delivery times.

The strong performance in the eurozone contrasted with the UK, where rising infections, subdued customer demand and shortages of workers slowed growth in July despite the relaxation of Covid-19 restrictions, a closely watched survey showed on Friday.

The flash, or interim, UK purchasing managers’ index published by the research group IHS Markit and the Chartered Institute of Procurement and Supply, which provides a measure of the health of the services and manufacturing sectors, fell to 57.7 in July from 62.2 in the previous month.

The reading was lower than the 61.7 forecast by economists polled by Reuters, while still above the 50 mark which indicates a majority of businesses reporting an expansion.

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