2023-08-27 10:00:16
The interest rate rise 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 activity index (index of the purchasing managersfor its acronym in English) anticipates that business activity in the EMU contracted at a higher rate in August, as the economic slowdown continued to spread from the Manufacturing sector to the service But, in addition, the PMI indicator, built from the survey to 5,000 purchasing managers in the euro zonebrings bad omens: aim 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 drop in new orders so far in August is the most intense since October 2012 -the GDP of the euro zone suffered a recession of 0.8% that year-, according to the report published by S&P Global last Wednesday.
“New orders for products 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 p servicesFor the second month in a row: “This contracted in August at a rate not seen since May 2013 if the months of confinement due to Covid-19 are excluded,” the S&P Global report states.
leading indicator
The follow-up of the order book constitutes a valuable leading indicator regarding the future evolution of the economy. The PMI indicator is built from surveys of executives of more than 5,000 companies belonging to the service sector and the manufacturing sector of 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 area will contract by 0.2% in the third quarter,” sums up Hamburg Commercial Bank chief economist Cyrus de the Blonde.
The decline in the order book is related to the stagnation in the hiring workers that managers anticipate for the coming months. It also has to do with the greater weakness of business confidence. Industrial firms have continued to reduce “intensely” the purchase of inputs in August, in line with the reduction in its 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 industrial and service companies Germany, that show a greater deterioration than those of France. “This evolution will only increase the notion that Germany is the sick person of the European economy,” sums up De la Rubia.
Related news
In the case of spain, expectations are not rosy either. The industrial climate survey corresponding to the month of July shows growing pessimism among businessmen with increasingly negative values in the indicators of order-book and of production and employment expectations. 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 the respondents point out the lack of demand as the main factor limiting its production.
Together, the industrial climate indicator of 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 what 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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