Eurozone business growth slows as demand peaks

Eurozone business growth slowed markedly in September as demand peaked and supply chain problems affected production and deliveries, a survey showed.

IHS Markit's flash composite output purchasing managers' index dropped to 56.1 from 59 a month earlier. The reading was a five-month low and fell short of analysts' average forecast of 58.5.

Slowing growth was led by manufacturing where output dropped to an eight-month low of 56.1 while services slipped to 56.3 - the lowest score since May. Supply chain constraints hit manufacturing and delivery times for some service businesses. Continuing concerns about the pandemic were blamed for subdued demand growth.

Business costs rose at the fastest pace for 21 years as demand outstripped supply, causing price rises to feed through from manufacturers to services. Business expectations for the coming year were also knocked by rising worries over the impact of the Delta variant on demand and supply chains, contributing to a further easing in the rate of job creation from July’s 21-year peak.

Growth slowed most markedly in Germany, the eurozone's biggest manufacturing nation, followed by France where manufacturing output registered a small increase.

Chris Williamson, IHS Markit's chief business economist, said: "September’s flash PMI highlights an unwelcome combination of sharply slower economic growth and steeply rising prices.

“On one hand, some cooling of growth from the two-decade highs seen earlier in the summer was to be expected. On the other hand, firms have become increasingly frustrated by supply delays, shortages and ever-higher prices for inputs."

IHS Markit said despite slowdowns growth was still robust. But Claus Vistesen of Pantheon Macroeconomics said there were warning signs in the results.

"We now see clear evidence that the sustained and intensifying supply-side constraints are hitting demand," Vistesen said. "It does suggest that the idea of a 'ketchup-effect' in manufacturing - where production soars in response to rising new orders as supply side woes clear - is less likely. In services, growth was always going to slow after the initial reopening lift to activity, but the pandemic is still weighing on exports i.e. tourism."