Eurozone PMI Services was finalized at 53.5 in August, revised up from 53.4, slightly up from July’s 53.2. PMI Composite was finalized at 51.9, up from July’s 51.5. Among the member states, Italy PMI Composite dropped to 2month low at 50.3. German PMI Composite rose to 2-month high of 51.7. France PMI Composite rose to 9-month high of 52.9.
Chris Williamson, Chief Business Economist at IHS Markit said:
“The eurozone remained mired in a fragile state of weak and unbalanced growth in August,
“Although up on July, the latest reading indicates that GDP will rise by just 0.2% in the third quarter, assuming no substantial change in September. Official data available so far for the quarter suggest growth could be even weaker.
“The picture remains very mixed both by sector and country, highlighting how downside risks persist. A fierce manufacturing downturn, fuelled by deteriorating exports and most intensely felt in Germany, continues to be offset by resilient growth in the service sector, in turn propped up to a large extent by solid consumer spending in domestic markets.
“The big question is how long this divergence can persist before the weakness of the manufacturing sector spreads to services and households. With jobs growth waning to the slowest since early-2016 a deteriorating labour market looks set to be a key transmission mechanism by which the trade-led downturn infects the wider economy. A sharp drop in business optimism about the coming year in the service sector, down to the joint-lowest for six years, suggests that companies are already braced for tougher times ahead.
“We therefore expect to see renewed stimulus from the ECB in September as the central bank seeks to revive demand and stem the spreading malaise.”
UK PMI services dropped to 50.6, PMIs suggests -0.1% GDP contraction in Q3
UK PMI Services dropped to 50.6 in August, down from 51.4 and missed expectation of 52.0. Markit noted weaker rises in business activity and new work. Margins were squeezed by sharpest cost inflation since January. Growth projections also dropped to lowest since July 2016. All Sector Output Index dropped from 50.3 to 49.7, second sub-50 reading in three months.
Chris Williamson, Chief Business Economist at IHS Markit, which compiles the survey:
“Business activity in the service sector almost stalled in August as Brexit-related worries escalated, curbing spending by both businesses and consumers. So far this year the services economy has reported its worst performance since 2008, with worrying weakness seen across sectors such as transport, financial services, hotels and restaurants, and business-to-business services.
“After surveys indicated that both manufacturing and construction remained in deep downturns in August, the lack of any meaningful growth in the service sector raises the likelihood that the UK economy is slipping into recession. The PMI surveys are so far indicating a 0.1% contraction of GDP in the third quarter.
“While the current downturn remains only mild overall, the summer’s malaise could intensify as we move into autumn. Companies have grown increasingly gloomy about the outlook due to the political situation and uncertainty surrounding Brexit, adding to downside risks in coming months. With the exception of the slump in sentiment after the 2016 referendum, August saw service sector firms at their gloomiest since the height of the global financial crisis in early 2009.
“Overall jobs growth has meanwhile also ground to a halt as worries about deteriorating order books and the gloomier outlook took their toll on firms’ appetite to hire, pointing to a weakening labour market and adding to the darkening outlook.”
Full release here.