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Flash PMI surveys showed the eurozone enjoying the strongest
expansion of the major developed economies in August. The eurozone
has also avoided the lockdown measures associated with rising
COVID-19 cases which dampened growth in the US and led to deepening
downturns in Japan and Australia. The eurozone is also benefitting
from fewer supply and labour market constraints than the UK and US,
where growth slowed sharply due to these shortages, with prices
rising commensurately higher as a result.
The eurozone enjoyed the fastest growth of the world's major
economies for a second month running in August, according to the
flash PMIs, with growth slowing sharply in both the US and UK while
Australia and Japan slipped into deeper downturns.
The
eurozone is showing particular resilience to the Delta wave of
COVID-19 so far, with growth slowing only slightly in August
compared to July's 15-year high. In fact, the average readings for
the third quarter so far puts the bloc on course for its strongest
expansion for 21 years. Service sector growth held close to 15-year
highs as lockdown measures were eased to the lowest since the
pandemic began, helping offset some of the slowing in
manufacturing, where eurozone producers reported ongoing supply
constraints to have been a principal cause of weakened performance.
The overall pace of manufacturing expansion nevertheless remained
one of the strongest recorded over the past two decades.
In contrast, growth
slowed sharply in the UK where - although lockdown measures
were also reduced to pandemic-lows - shortages of materials and
labour were cited as key factors dampening growth in both
manufacturing and services. The overall rate of expansion
consequently slowed markedly for a third month running to the
lowest since the recovery from the latest lockdown began in
March.
Growth likewise cooled for a third successive month in the US,
dropping to the lowest seen since December due to a combination of
materials and labour constraints plus rising virus infections due
to the increased spread of the Delta variant. The service sector
was hardest hit by the surge in COVID cases, though manufacturing
production remained severely constrained and lost momentum with
producers once again unable to meet strong demand.
Even
worse was seen in Japan, where output fell at the sharpest rate
since August of last year, dropping for a fourth successive month
as the country grappled with a rise in COVID-19 cases. Only
marginal factory output growth was accompanied by a steep drop in
service sector activity.
Business activity across Australia declined for a second month
running in August, with manufacturing and services posting the
largest monthly declines since May of last year. Survey respondents
signalled that the increase in COVID-19 cases, underpinned by the
Delta variant, and the corresponding lockdowns across various
Australian states in August continued to dampen demand and
output.
Growth variances linked to vaccination rates and virus
containment
The underperformance of both Japan and Australia can be easily
explained by both countries having vaccination rates far lower than
seen in the US, eurozone and UK, and also having higher COVID-19
containment measures, the latter reflecting tightened restrictions
to curb the Delta variant spread. While covid containment measures
in the eurozone and UK fell to the lowest since the pandemic began
in August, and only a modest tightening was seen in the US relative
to July's low, lockdown measures have been tightened in both
Australia and Japan in recent months to the highest for over a
year.
But supply constraints also play a major
role
The eurozone's outperformance can meanwhile be at least
partially linked to its job market: whereas employment growth
slowed to a 13-month low in the US as firms reported difficulties
finding staff, jobs growth boomed in the eurozone, matching July's
21-year high.
Similarly, although record employment growth was seen in the UK,
buoyed by the country's furlough scheme continuing to be unwound,
this failed to meet firms' demand for labour. The number of
companies reporting that output had fallen due to staff or
materials shortages has risen far above anything ever seen
previously in more than 20 years of UK PMI survey history. Far
fewer labour market shortages were recorded in the eurozone.
Variances in materials supply constraints also played a role in
driving growth divergences: while bottlenecks grew at a reduced
(though still marked) rate for a second month in the eurozone,
supply delays worsened to near-record and record highs in the UK
and the US in August, respectively.
US and UK see steepest price rises
The causes of these growth divergences also had a bearing on
inflation trends. With the US and UK seeing growth constrained by
materials and labour shortages to greater degrees than the
eurozone, Japan or Australia, input cost pressures also rose to
greater extents as a result of demand running ahead of supply.
Chris Williamson, Chief Business Economist, IHS
Markit
Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
