2023-08-27 12:09:18
The rise of interest rates is taking its toll on companies in the euro zone. Demand falls, while financing costs become more expensive and all this results in less activity by companies.
The PMI (Purchasing Managers’ Index) activity index anticipates EMU business activity contracted at a faster pace in August as the economic slowdown continued to spread from manufacturing to services . But, in addition, the PMI indicator, built from the survey of 5,000 purchasing managers in the euro zone, brings bad omens: points out the third consecutive drop in the new order book for both sectors, the largest since November 2020. If the months of the pandemic are excluded, the fall in new orders so far in August is the most intense since October 2012 -the GDP of the euro zone suffered a 0.8% recession in that year-, according to the report published by S&P Global last Wednesday.
“New product orders continued to decline at one of the most intense rates since the global financial crisis“, underlines the report. And to this is now added the deterioration in the demand for services for the second consecutive month: “This contracted in August at a rate that had not been observed since May 2013 if the months of confinement due to covid-19”, is stated in the S&P Global report.
leading indicator
The monitoring of the order book constitutes a valuable leading indicator regarding the future evolution of the economy. The PMI indicator is built from surveys of managers from more than 5,000 companies belonging to the service and manufacturing sectors in Germany, France, Italy, Spain, the Netherlands, Austria, Ireland and Greece.
The statistical data corresponding to the last quarters already show a slowdown in business activity in Spain and in Europe. Now, the data on the order book anticipate that the slowdown will continue in the coming months. “Analysis of the PMI figures in our real-time estimate of GDP leads us to the conclusion that the euro zone will contract 0.2% in the third quarter“, summarizes the chief economist of Hamburg Commercial Bank, Cyrus de la Rubia.
The decline in the order book is related to the stagnation in the hiring of workers that managers anticipate for the coming months. It also has to do with the weaker business confidence. Industrial firms have continued to “intensely” reduce the purchase of inputs in August, in line with the reduction in their production needs, and the stock of finished products has also decreased.
“Germany, the sick of Europe”
The downward pressure on the Eurozone economy in August comes mainly from German industrial and service companies, which show a greater deterioration than those in France. “This evolution will only increase the notion that Germany is the sick person of the European economy,” sums up De la Rubia.
In the case of Spain, expectations are not rosy either. The industrial climate survey for the month of July shows growing pessimism among businessmen with increasingly negative values in the indicators for the order book and expectations for production and employment. According to the results of this survey, the current order book ensures production for the next 4.8 months (0.3 less than in the previous quarter, remaining at levels similar to those observed since 2019). Most of those surveyed point to the lack of demand as the main factor limiting their production.
Overall, the industrial climate indicator for the last three months shows a Negative index of 9.6 points in Spain (out of 100) which, in any case, is somewhat less pessimistic than that which emerges from the same indicator in Germany (-13.3 points) or France (10.7 points) but weaker than that corresponding to Italy (-6.1%) or to Netherlands (-3.2 points).
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