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Growth in euro zone business activity has slowed down this month as firms face soaring costs due to supply-chain constraints, while the bloc’s dominant service industry struggled amid ongoing COVID-19 concerns, a survey showed on Friday.
IHS Markit’s Flash Composite Purchasing Managers’ Index, a good gauge of overall economic health, fell to a six-month low of 54.3 in October from 56.2 in September.
That matched the lowest forecast in a Reuters poll which had predicted a more modest drop to 55.2 but was still comfortably above the 50-mark which separates growth from contraction.
“A sharp slowdown in October means the euro zone starts the fourth quarter with the weakest growth momentum since April,” said Chris Williamson, chief business economist at IHS Markit.
“While the overall rate of economic growth remains above the long-run average for now, risks seem tilted to the downside for the near-term as the pandemic continues to disrupt economies and push prices higher.”
Supply chain bottlenecks caused by the coronavirus pandemic, alongside a shortage of heavy goods vehicle drivers, meant the input prices index jumped to 73.1 from 70.9, by far the highest since the survey began in mid-1998.
A PMI for the services industry fell to 54.7 from 56.4, its lowest since April, and below a 55.5 Reuters poll forecast.
But firms took on staff at the fastest rate since in over 14 years. The employment index rose to 56.0 from 54.1.
Manufacturing activity remained robust and the factory PMI only inched down from September’s 58.6 to 58.5 although an index measuring output, which feeds into the composite PMI, dropped to 53.2 from 55.6, its lowest since June 2020.
Prices for the raw materials factories need increased at a record pace, and while manufacturers passed some of those costs to customers, they were unable to transfer the whole burden. The output prices index climbed to 72.3 from 70.4, its highest since IHS Markit began collecting the data in late 2002.
“Average selling prices for goods and services are rising at a rate unprecedented in over two decades, which will inevitably feed through to higher consumer prices in the coming months,” Williamson said.
That suggests the recent surge in inflation won’t be dissipating anytime soon, disputing the European Central Bank’s view the upswing would be transitory.