Eurozone business activity hits 15-year high in June

Business activity in the eurozone hit a 15-year high in June as coronavirus restrictions eased but cost pressures remained a concern, with inflation hitting its strongest since September 2000, according to a survey released on Monday.

IHS Markit’s final composite purchasing managers’ index rose to 59.5 from 57.1 in May, hitting its best level since June 26 and coming in above the flash reading of 59.2. A reading above 50.0 signals growth, while a reading below indicates contraction.

The final eurozone services business activity index rose to 58.3 in June from 55.2 the month before, coming in ahead of the flash estimate of 58.0. This marked the highest level since July 2007.

Chris Williamson, chief business economist at IHS Markit, said: "Europe’s economic recovery stepped up a gear in June, but inflationary pressures have also ratcheted higher. Business is booming in the eurozone’s service sector, with output growing at a rate unsurpassed over the past 15 years. Added to the impressive growth seen in the manufacturing sector, the PMI surveys suggest the region’s economy is firing on all cylinders as it heads into the summer."

However, he also noted that firms are increasingly struggling to meet surging demand, in part due to labour supply shortages, "meaning greater pricing power and underscoring how the recent rise in inflationary pressures is by no means confined to the manufacturing sector".

"Service sector companies are hiking their prices at the steepest pace for over 20 years as costs spike higher, accompanying a similar jump in manufacturing prices to signal a broad-based increase in inflationary pressures," Williamson added.

Mel Debono, senior European economist at Pantheon Macroeconomics, said that looking ahead, the risk that a third wave will derail the recovery in the third quarter is now rising.

"Case numbers are rising in certain countries, including Spain, as the Delta variant is quickly finding gaining ground on the continent. While immunisation programmes have continued apace, the risk of a re-imposition of certain virus restrictions across the bloc - as we have seen in Portugal - is rising," she said.