Eurozone Economy Declined in August

Business activity in the eurozone decreased in August for the second consecutive month, as citizens, pressured by high inflation, have limited spending to essential goods, forgoing travel and recreation, a survey by S&P Global revealed on Monday.

The Purchasing Managers’ Index (PMI) fell by one point in August compared to July, to 48.9 points, the lowest level in 18 months, reported S&P Global.

Values below 50 points indicate a decline in activity.

– The decline in activity deepened in August, as companies and citizens reduce spending in light of the sharp rise in inflation and increasingly pronounced uncertainty in economic forecasts, said S&P Global’s chief business economist Chris Williamson.

The deterioration has spread, Williamson notes, 'so now even services based on close contact with consumers, such as travel, tourism, and recreation, which led growth in the first half of the year, are recording lower levels of activity,' Williamson adds.

Due to rising living costs, households are forced to cut spending on all products and services that are not essential, explains the S&P Global economist.

In such conditions, demand for both goods and services has decreased, with foreign demand recording a decline for the sixth consecutive month, and this decline is stronger than overall orders, S&P Global notes.

Among the countries covered by the survey, Germany was a significant weight on the eurozone, experiencing the largest decline in activity since the onset of the COVID-19 pandemic, while Italy also recorded a decline.

In France, Spain, and Ireland, activity modestly increased.

– Regarding the upcoming period, activity could fall even more sharply in September, judging by the accelerated decline in new orders, and companies are already reducing their workforce as their turnover is weaker than expected, costs are rising sharply, and they are troubled by future growth, concludes Williamson.