The rapid rollout of Covid vaccines across Europe is fuelling consumer spending, helping to propel business activity in the Eurozone to a 15-year high, according to a closely watched survey released today.
IHS Markit’s latest Eurozone purchasing managers’ composite output index rose to 60.2 in July, driven by an acceleration in manufacturing growth and strong consumer spending in the services industry.
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The vaccine rollout in Europe has gathered pace in recent months after a sluggish start, which has helped to dampen the severity of health implications from Covid infections.
As a result, policymakers in the Eurozone has been able to lift restrictions on sectors of the economy that rely on social and face-to-face contact to generate income.
As measures have eased, consumers have released pent up demand by rushing to high streets, cafes and bars to purchase goods and services that have been largely unavailable since the onset of Covid.
Chris Williamson, Chief Business Economist at IHS Markit said: “Europe’s service sector is springing back into life. Easing virus restrictions and further vaccination progress are boosting demand for a wide variety of activities, especially in the tourism, travel and hospitality sector.”
The final reading edged down slightly from the flash score of 60.6.
Strong activity in the Eurozone’s services industry was supported by high output levels among manufacturing businesses, driven by high international demand for Eurzone exports, IHS Markit said.
Order backlogs continued to swell in July as a result of firms buckling under intense demand pressures.
IHS Markit said: “The consequence of steep month-to-month growth in new business strained operating capacities across the eurozone immensely in July.”
Businesses responded to capacity constraints by rushing to scale staffing levels, indicating the labour market recovery in the Eurozone is likely to extend into the coming months.
Inflationary pressures persist
The survey shows the cost of securing inputs is continuing to rise at a substantial pace, but eased slightly over the last month.
Input costs rose at the strongest rate since September 2000, although the pace of increase was only fractionally quicker than in June, IHS Markit said.
Williamson warned that firms may struggle to pass higher prices on to consumers in the future.
“Up to now companies have generally seen little resistance from customers to higher prices, but this could change after the current rebound from lockdown restrictions has passed,” he said.