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Eurozone November growth is surprisingly strong as prices surge

Eurozone November growth is surprisingly strong as prices surge

November 24, 2021: -On Tuesday, Eurozone business growth unexpectedly accelerated this month as consumers shrugged off another wave of coronavirus infections and new restrictions, while price pressures soared again, a survey showed.

IHS Markit’s Flash Composite Purchasing Managers’ Index, a good indicator of economic health, increased to 55.8 in November from 54.2 in October.

The survey exceeds all forecasts in a Reuters poll that predicted a drop to 53.2 and was comfortably above the 50-mark, separating growth from contraction.

“A stronger expansion of business activity in November defied economists’ expectations of a slowdown, but is to prevent the eurozone from suffering the growth in the fourth quarter, as rising virus cases look set to cause renewing disruptions to the economy in December,” said Chris Williamson, a chief business economist at IHS Markit.

Supply bottlenecks caused by the pandemic, alongside a shortage of heavy goods vehicle drivers, make it a sellers’ market for raw materials. The composite input prices index surged to 75.9 from 73.2, by far the highest since the survey started in mid-1998.

Still, a PMI for the bloc’s dominant services industry increased to 56.6 from 54.6, well above all forecasts in a Reuters poll that had predicted a decrease to 53.5.

But optimism waned as renewed lockdowns are to have a more significant impact on services. The business expectations index sank to 66.6 from 69.0, its lowest reading since the month of February.

Manufacturing activity remained robust, and the factory PMI increased to 58.6 from 58.3. An index measuring output, feeding into the composite PMI, increased to 53.8 from 53.3.

Demand remained strong, and factories could pass on some of the record increase in raw material costs to customers. The output prices index increased to 74.3 from 72.6, the highest since the IHS Markit began collecting the data 19 years ago.

That casts little doubt on the European Central Bank’s claim the rise in inflation is transitory. According to a Reuters poll earlier this month, Eurozone inflation expectations are at risk of continuing to overshoot the Bank’s 2% target in the coming year.

“With supply delays remaining close to record highs and energy prices spiking higher, upward pressure on prices has intensified far above anything previously witnessed by the surveys,” Williamson said.

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Eurozone November growth is surprisingly strong as prices surge