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Euro zone business growth slowed in Sept as supply issues, pricing bite -PMI By Reuters


© Reuters. FILE PHOTO A ThyssenKrupp AG steel worker stands in front of a blast furnace that emits sparks of iron from Germany’s biggest steel plant, Duisburg. REUTERS/Wolfgang Rattay

LONDON (Reuters – The euro zone’s business growth was strong in last month. However, it was hit by supply constraints that limited activity, and high inflationary pressures that lowered demand. This is likely to be a continuing problem, according to a survey released Tuesday.

IHS Markit’s last composite Purchasing Managements’ Index (PMI), which is considered a reliable indicator of economic health, fell to 56.2 from August’s 59.0. It was still higher than the 50 threshold that distinguishes growth from contraction. And it just missed the 56.1 “flash” estimate.

Five-months of low demand were caused by firms passing on part the rising input costs to consumers. It rose to 59.1 after a low of 58.3, which is close to the peak survey data set during summer.

The current euro area economic environment is characterized by rising prices and slower growth. Both of these are related to shortages in supply, particularly in manufacturing which has experienced a sharper decline in output growth than the services sector,” stated Chris Williamson chief business economist at IHS Markit.

Although the economic expansion rate is still relatively high by historical standards, it enters the last quarter on a declining growth path.

Friday’s manufacturing PMI revealed that activity was up in September. However, supply chain bottlenecks caused slowing of activity. In addition, the bloc’s largest service industry saw its expansion rate slow down.

The services sector PMI fell to 56.4 (from 59.0), its lowest reading since May. While the new business Index dropped to 55.3 (from 57.9), it was still high.

Williamson stated that the service sector also reported a cooling in demand. This can’t be explained easily by scarcity, but is partly due to customers feeling discouraged by worries about the persistance of the pandemic as well as higher prices.

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