August 24, 2023: On Wednesday, the euro zone’s flash composite to purchase managers’ index, decreased to 47.0 for August from 48.6 in July.
A reading above 50 marks an expansion in training, while less than 50 marks a contraction. If Covid pandemic months are banned, the latest numbers point to the lowest reading since a decade.
Cyrus de la Rubia, a chief economist at Hamburg Commercial Bank, said the euro zone’s service sector is “unfortunately showing signs of turning down to match the poor performance of manufacturing.”
Regarding the breakdown between services and manufacturing, the former dropped to a 30-month low at 48.3, and the manufacturing PMI rose slightly from 42.7 in July to 43.7 this month.
“Considering the PMI figures in our GDP increase nowcast leads us to conclude that the eurozone will shrink by 0.2% in the third quarter,” Rubia added.
The eurozone, the region of 20 nations that share the same currency, grew by 0.3% in the second quarter, having expanded by 0.1% in the first quarter. This lackluster growth shows the impact of higher interest rates and energy prices and subdued external demand.
However, it also masks sharp differences within the region. Germany, for example, reported the deepest contraction in business activity in August.
“The downward pressure on the economy of the eurozone in August stems mainly from the German service sector, which switched from growth to contraction at an unusual pace,” Rubia said, adding that reduced output in manufacturing also adds to the argument that Germany is becoming “the sick man of Europe.”