By Jonathan Cable
LONDON (Reuters) – Euro zone companies expanded at the fastest rate in 15 years in June as easing more coronavirus restrictions brought the bloc’s dominant service industry back to life, a survey showed Monday.
But that spike in growth has come at a cost as inflationary pressures mounted due to labor shortages and disruptions to supply chains caused by the pandemic.
IHS Markit’s final composite Purchasing Managers Index (PMI), considered a good indicator of economic health, jumped to 59.5 last month from 57.1 in May, its highest level since June 2006.
That was ahead of the “flash” estimate of 59.2 and well above the 50 mark that separates growth from contraction.
“The index was at its 15-year high, confirming that the recovery of the bloc’s economy is on track. At the same time, the delays and pressures on producer prices show no signs of abating,” said Mateusz Urban from Oxford Economics.
“The PMI services sub-index registered an increase. This indicated that the sector has benefited from the easing of restrictions and greater optimism from consumers thanks to the progress of the vaccination campaign.”
An acceleration in vaccination programs on the continent has meant that governments have allowed the service industry to reopen further and the sector’s PMI soared to its highest reading since July 2007.
Activity in Germany’s service industry grew in June at its fastest pace since March 2011, while in France the sector boomed following the easing of COVID-19 restrictions. [ZRN002C4B]
Meanwhile, in Britain outside of the euro zone and the European Union, the post-lockdown service business rally eased only slightly in June, but price pressures increased by the largest amount on record. [GB/PMIS]
Global stocks held near record highs on Monday as concerns over the Delta variant of COVID-19 offset positive sentiment from growing euro zone trading activity. [MKTS/GLOB]
A PMI covering euro zone manufacturers, released last week, showed that manufacturing activity expanded at its fastest pace on record in June, but faced the steepest rise in raw material costs by more than Two decades.
Those inflationary pressures were also felt by the service industry, and the composite input price index rebounded to its highest in nearly 21 years.
Although inflation risks are biased to the upside, the European Central Bank was expected to keep its monetary policy loose and scrutinize higher inflation expectations for a time before acting, according to a Reuters poll last month. [ECILT/EU]
With increased demand and the hope of further relaxation of restrictions leading to a more normal way of life, optimism about the coming year improved. The utility expectations index rose to 72.7 from 71.2, its highest level since August 2000.
Investor morale in the euro zone rose for the fifth month in a row in July, its highest level since February 2018, driven by the reopening of restaurants and retailers, as well as tourism as coronavirus cases plummet, it showed another poll on Monday.
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