Eurozone Economy Challenges with Declining Output

by Warren Seah

The eurozone’s economic output experienced a larger contraction than originally estimated in August, according to a recent purchasing managers’ survey. This decline, the sharpest since November 2020, indicates potential challenges on the horizon for the bloc’s economy.

The HCOB Eurozone Composite PMI Output Index, which measures activity in the manufacturing and services sectors, dropped to a 33-month low of 46.7 in August, down from 48.6 in July. This figure is weaker than the preliminary estimate of 47.0 published last month, revealing a further deterioration in economic contraction since it fell below the no-change mark of 50.

HCOB reported that the decline in activity was widespread, with the services sector experiencing contraction for the first time this year. Manufacturing remained sluggish, new orders declined, and private-sector employment growth slowed to its lowest rate in 31 months.

Additionally, input price inflation accelerated for the first time since September 2022. On the other hand, the increase in prices charged for goods and services was the slowest in two-and-a-half years, which adds to concerns about the state of the economy.

Despite not slipping into a recession during the first part of the year, the eurozone faces an even greater challenge in the second half, according to Cyrus de la Rubia, the chief economist at Hamburg Commercial Bank. The services sector, which had previously been seen as a boost for the economy, has become a drag, and manufacturing has yet to reach its lowest point.

Though Germany and France were the main weak spots among eurozone nations in August, de la Rubia believes that Italy and Spain may not be able to avoid a significant downturn in their services sectors.

Overall, these findings underscore the pressing issues facing the eurozone’s economy and suggest a potentially rocky road ahead.

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