LDN - Business

Euro zone business boom roared on in August -PMI

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[August 23, 2021] By Jonathan Cable

LONDON (Reuters) -Business activity in the euro zone grew strongly again this month, only dipping from July's two-decade high monthly pace, as a rapid vaccination drive against the coronavirus allowed more firms to reopen and customers to venture out, a survey showed.

Without ongoing supply chain disruptions, activity could have expanded faster, but fears new coronavirus strains may lead to renewed restrictions continued to put a dent in optimism.

IHS Markit's Flash Composite Purchasing Managers' Index, seen as a good guide to economic health, fell to 59.5 in August from 60.2 last month. It was ahead of the 50-mark separating growth from contraction but just shy of a Reuters poll estimate for 59.7.

"The euro zone economy is firing on all cylinders again as reopening has had the expected positive effect on growth. Concerns about the impact of the Delta variant and input shortages remain but have not derailed the rebound thus far," said Bert Colijn at ING.

Both the services and manufacturing indices remained firmly in growth territory in Germany, confirming Europe's biggest economy remained on a recovery path, an earlier survey showed.

In France, the bloc's second-biggest economy, growth in business activity slowed compared to July but remained resilient, as problems with supplies of goods and COVID-19 health protocols impacted trade.

But Britain's post-lockdown economic bounce-back slowed sharply as companies struggled with unprecedented shortages of staff and materials, although strong inflation pressures cooled a bit.

Markets were unmoved by the PMI data and were instead focused on worries about the Delta variant of COVID-19 hampering growth as investors weighed up the possible timeline for tapering monetary stimulus ahead of Federal Reserve Chair Jerome Powell's speech at Jackson Hole this week. [MKTS/GLOB]

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Staff wear protective masks at the Volkswagen assembly line in Wolfsburg, Germany, April 27, 2020. Swen Pfoertner/Pool via REUTERS

JOB BOOST

Firms increased headcount in the euro zone at a near-record pace but were still unable to complete all new business coming in, building up a backlog of work at the third-fastest pace in survey history. The composite employment index held at 56.1.

A PMI covering the bloc's dominant service industry nudged down to 59.7 from July's 15-year high of 59.8. The Reuters poll had predicted 59.8.

Demand only slowed marginally from July - suggesting the rebound will continue - but the services business expectations index, which measure optimism about the year ahead, dropped to 68.6 from 69.1.

"We continue to see the potential spread of more virulent virus variants and the prolongation of supply chain issues as the main risks to the economic recovery," said Maddalena Martini at Oxford Economics.

"Therefore, the level of uncertainty around the forecast remains very high, but we still expect a strong recovery over the coming quarters."

Manufacturers had another solid month, their PMI remaining well above the breakeven mark at 61.5, albeit below July's 62.8 and the 62.0 poll estimate. An index measuring output that feeds into to the composite PMI fell to 59.2 from 61.1.

But supply delays - the delivery times index was near a survey low - again played a key role in driving up the costs of the raw materials factories need. The input prices index was 87.3, although down from July's record high of 89.2.

(Reporting by Jonathan Cable; Editing by Catherine Evans and Nick Macfie)

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