# Euro zone business activity contracted again in Aug, outlook bleak
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-08-23
Category: NEWS
Category URL: https://financedigest.com/category/news
Meta Title: Euro Zone Business Activity Contracts in August
Meta Description: Euro zone business activity declined for a second month, fuelled by the cost of living crisis and supply chain disruptions, raising recession concerns amid
URL: https://financedigest.com/euro-zone-business-activity-contracted-again-in-aug-outlook-bleakhtml

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By Jonathan Cable

LONDON (Reuters) -Business activity across the euro zone contracted for a second straight month in August as the cost of living crisis forced consumers to curtail spending while supply constraints continued to hurt manufacturers, a survey showed on Tuesday.

The global economy is increasingly at risk from sliding into recession as Russia’s invasion of Ukraine and China’s strict COVID-19 lockdowns have further damaged supply lines not yet recovered from the pandemic.

Meanwhile, consumers are facing the highest [inflation in a generation which is forcing central banks](https://www.financedigest.com/be-really-really-careful-on-inflation-bank-of-englands-haskel.html "Be ‘really, really careful’ on inflation – Bank of England’s Haskel") to tighten monetary policy aggressively just as the economies need support.

S&P [Global’s flash euro zone Composite Purchasing Managers’ Index](https://www.financedigest.com/2017-global-payroll-complexity-index-reveals.html "2017 Global Payroll Complexity Index Reveals ") (PMI), seen as a good guide to overall economic health, fell to 49.2 in August from 49.9 in July, just above the median forecast in a Reuters poll for a bigger drop to 49.0.

A reading below 50 indicates a contraction and August’s preliminary estimate was the [lowest since](https://www.financedigest.com/uk-unemployment-hits-lowest-since-1974-but-jobs-boom-is-fading.html "UK unemployment hits lowest since 1974 but jobs boom is fading") February 2021.

The [continued decline in the PMIs in August suggests that a recession in the winter](https://www.financedigest.com/scholz-if-germany-continues-to-adapt-we-will-make-it-through-winter.html "Scholz: if Germany continues to adapt, we will make it through winter") half-year is increasingly likely,” said Christoph Weil at Commerzbank.

Russia is supplying only a limited amount of gas, high inflation is tearing deep holes in the coffers of private households, companies are facing massive uncertainties – the economic outlook for the economy in the [euro zone](https://www.financedigest.com/euro-zone-consumers-more-optimistic-on-inflation-ecb-survey-shows.html "Euro zone consumers more optimistic on inflation, ECB survey shows") is bleak.

A downturn in Germany, Europe’s largest economy, deepened in August, a separate PMI survey showed, as companies saw [demand dampened by a combination of high inflation](https://www.financedigest.com/aussie-supermarkets-set-to-capitalise-on-high-inflation-but-softer-demand-ahead.html "Aussie supermarkets set to capitalise on high inflation, but softer demand ahead"), rising interest rates and economic uncertainty.

France’s economy contracted for the first [time in a year](https://www.financedigest.com/why-the-new-year-is-the-best-time-to-start-your-dream-tech-business.html "Why the New Year is the best time to start your dream tech business") and a half, its PMI showed, as weaker demand and inflationary pressures also hit businesses there.

Problems are mounting for the French and [German economies](https://www.financedigest.com/german-economy-likely-grew-in-q1-beating-expectations-bundesbank.html "German economy likely grew in Q1, beating expectations – Bundesbank"). Demand has fallen due to the toxic combination of rampant inflation, [rising interest rates and energy security worries,”](https://www.financedigest.com/sterling-rises-as-receding-bank-sector-worries-lift-sentiment.html "Sterling rises as receding bank sector worries lift sentiment") said Susannah Streeter at Hargreaves Lansdown.

In Britain, outside the European Union, private sector growth slowed to a crawl as [factory output](https://www.financedigest.com/japans-factory-output-posts-biggest-fall-in-8-months-on-weak-autos-chips-sectors.html "Japan’s factory output posts biggest fall in 8 months on weak autos, chips sectors") fell and the larger services sector eked out only a modest expansion, indicating a recession was coming.

Suggesting there was little hope of an imminent turnaround in the [euro zone](https://www.financedigest.com/euro-zone-inflation-eases-in-feb-but-core-prices-pick-up.html "Euro zone inflation eases in Feb but core prices pick up"), overall demand in the bloc fell for a second month. The new [business index](https://www.financedigest.com/world-bank-scrapping-ease-of-doing-business-index-is-a-reminder-to-focus-on-fundamentals.html "World Bank scrapping Ease of Doing Business Index is a reminder to focus on fundamentals") came in at 47.7, just ahead of July’s 47.6.

A PMI covering the bloc’s [dominant services](https://www.financedigest.com/uk-to-examine-cloud-services-dominated-by-amazon-microsoft-and-google.html "UK to examine cloud services dominated by Amazon, Microsoft and Google") industry fell to 50.2 from 51.2, barely above breakeven and below the 50.5 predicted in the Reuters poll.

Although services firms [increased their charges at a slower rate this month the output prices](https://www.financedigest.com/coca-cola-hbcs-annual-profit-beats-warns-of-price-increases.html "Coca-Cola HBC’s annual profit beats, warns of price increases") index remained well above the long-term average. The input prices index also dipped.

But they are still very high, and with European gas prices surging and measures of domestic price pressures strong, we expect inflation to [remain very high,” said Jack Allen-Reynolds at Capital](https://www.financedigest.com/bank-of-england-consults-on-remaining-basel-bank-capital-rules.html "Bank of England consults on remaining Basel bank capital rules") Economics.

All [things considered](https://www.financedigest.com/4-things-to-consider-before-buying-your-dream-car.html "4 Things To Consider Before Buying Your Dream Car"), the PMI surveys are consistent with our view the European Central Bank will have to press ahead with monetary tightening even as the economy falls into recession.

The ECB [raised interest](https://www.financedigest.com/delivery-hero-ramps-up-interest-payments-to-raise-1-billion-euro-convertible-bond.html "Delivery Hero ramps up interest payments to raise 1 billion euro convertible bond") rates by more than expected last month and a Reuters poll forecasts it would continue on its tightening path. \[ECILT/EU\]

[Manufacturing activity in the bloc fell again this month](https://www.financedigest.com/spanish-manufacturing-output-down-for-6th-straight-month-in-dec-pmi.html "Spanish manufacturing output down for 6th straight month in Dec -PMI"). The factory PMI dipped to 49.7 from 49.8, its [lowest since June](https://www.financedigest.com/uk-mortgage-approvals-hit-lowest-since-june-2020.html "UK mortgage approvals hit lowest since June 2020") 2020, while an index measuring output that feeds into the composite PMI was 46.5 compared to July’s 46.3.

The [Reuters poll](https://www.financedigest.com/japans-economy-likely-shrank-in-q3-on-weak-consumption-output-reuters-poll.html "Japan’s economy likely shrank in Q3 on weak consumption, output – Reuters poll") median forecast was for the headline number to be 49.0.

That downturn in [activity came despite factories completing old orders and building a surplus of completed products at the fastest rate since the survey began in mid-1997 as they struggled to sell in a falling demand](https://www.financedigest.com/global-factory-activity-weakens-as-demand-falters.html "Global factory activity weakens as demand falters") environment.

[(Reporting by Jonathan Cable; Editing by Susan Fenton)](https://www.financedigest.com/cable-cars-and-ropeways-market-report-size-growth-demand-scope-opportunities-and-forecast-2016-2026-fmi.html "Cable Cars and Ropeways Market Report | Size, Growth, Demand, Scope, Opportunities and Forecast 2016-2026: FMI")


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