The economic rebound from the coronavirus pandemic has begun to slow in Europe’s two largest economies after several months of improvement, according to a widely watched survey of business activity.
The IHS Markit purchasing managers’ index for France and Germany both substantially undershot economists’ expectations in August, raising questions about the strength of the eurozone’s rebound in the third quarter.
In France, the flash composite purchasing managers’ index fell to 51.7 in August, from 57.3 in July. Economists polled by Reuters had expected a plateau at 57.2.
In Germany, the flash composite purchasing managers’ index fell to 53.7, from 55.3 in July. Economists polled by Reuters had expected it to hold steady in Germany too, at 55.0.
A reading of above the 50 mark indicates a majority of businesses reported an expansion in activity.
The euro fell about 0.3 per cent against the dollar after the news broke. It was recently down 0.1 per cent against its US peer.
Phil Smith, an economist at IHS Markit, said activity in the German services sector was close to stalling in August following a jump in job losses that weakened domestic demand and a return of quarantine rules for travellers after coronavirus infections surged this summer. The PMI index for German services was 50.8, down from 55.6 in July.
German manufacturing seemed to do better — its PMI reading was 53, up from 51 in July — although Mr Smith said that continued cuts to factory employee numbers showed “there is still ground to make up and businesses remain under pressure to cut costs”.
In French manufacturing a falling proportion of businesses said activity had improved compared with the previous month, delivering a PMI reading of 49, down from 52.4 in July.
The PMI index for French services was 51.9, down from 57.3 in July.
“Following the sharp expansion registered in July, growth momentum has somewhat stuttered, with the expansion in new orders slowing to a snail’s pace as manufacturers fell back into contraction territory,” said Eliot Kerr, an economist at IHS Markit. “Meanwhile there was a reacceleration in the rate of job cutting after three months of successive easing.”
The German economy suffered a historic 10.1 per cent contraction in the second quarter, after a 2 per cent decline in the first quarter. The French economy suffered worse, contracting by 13.8 per cent in the three months to June after a 5.9 per cent decline in the first three moths of the year.
IHS Markit’s monthly business sentiment surveys are not a measure of the extent to which economic activity has recovered relative to pre-virus level and, while they signal how broad-based the recovery is, they cannot measure its pace.
Flash PMI estimates are published one week before the final results and are based on about 85 per cent of the typical responses.