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Eurozone business costs surge as supply chain snags slow growth


Newsletter: Europe Express

Business costs in the eurozone rose at their fastest pace in more than two decades in September, in the latest sign that supply chain shortages are hampering growth and inflationary pressures are rising.

Input costs rose for manufacturers and services at their sharpest rate since 2000, with input price inflation in manufacturing close to all-time highs, according to IHS Markit’s monthly purchasing managers’ survey.

Chris Williamson, chief business economist at IHS Markit, said September’s flash PMI “highlights an unwelcome combination of sharply slower economic growth and steeply rising prices”. Businesses said they were constrained by supply delays, shortages and high input prices, “often losing sales and customers”, he added.

Furthermore, many of those higher costs were being passed on to customers — as reflected in sales price inflation that accelerated in September to its third-highest rate in two decades, according to the report.

Line chart of Purchasing managers'  input price sub-index, above 50 = a majority of businesses reporting an expansion showing Eurozone input costs rise to a 2-decade high

“Price pressures remain intense and sky-high energy prices suggest that these are unlikely to ease any time soon,” said Jessica Hinds, Europe economist at Capital Economics.

The PMIs “suggest that headline inflation will rise further in the coming months than we have so far been assuming”, she said. Eurozone consumer price inflation hit a decade high of 3 per cent in August.

Growth may also be slowing, as shown by the flash IHS eurozone purchasing managers’ manufacturing output index, which fell to an 8-month low of 55.6 in September, down from 59 the previous month. Delivery times, a gauge of supply chain delays, also increased at a faster rate.

“Manufacturing continues to be hurt by low supplies of raw materials and key components, poor freight availability and some port closures in Europe and Asia,” said Peter Vanden Houte, chief economist at ING. Eurozone growth is being “jeopardised by supply bottlenecks”, he added.

The eurozone’s PMI index for services meanwhile slid to a 4-month low of 56.3, as the rebound that followed this summer’s reopening of the hospitality sector slowed.

Line chart of Purchasing managers' flash output index (Below 50 = majority reporting fall)  showing Eurozone activity loses momentum in September

Putting it all together the composite output index, an average of manufacturing and services, fell to a 5-month low of 56.1 — well below the 58.5 level economists expected but above 50, which indicates a majority of businesses reporting improvements versus the previous month.

Such figures are consistent with eurozone gross domestic product rising strongly in the third quarter, probably by about 2.5 per cent, Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said. But they also show that “the slowdown has now begun”.

Within the eurozone, growth slowed sharply in Germany to its lowest pace since February, and moderated in France. The survey’s figures came as Spain revised down its GDP growth figure for the second quarter to 1.1 per cent from 2.8 per cent.

The survey’s flash estimates are based on interviews conducted between September 13 and 22 and published one week before final results. 

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