UPDATE Eurozone business growth slumped to six-month low in October as price pressures soared

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By Shrutee Sarkar and Jonathan Cable

BENGALURU / LONDON, Nov. 4 (Reuters) – Eurozone business growth fell to six-month low in October, supply chain bottlenecks and logistics issues linked to the pandemic of COVID-19 having pushed input prices to rise at the fastest rate in more than two decades, an investigation has shown.

Government restrictions are lifted in the monetary bloc, but commodity shortages in the manufacturing sector are impacting growth and pent-up demand in the service sector is declining.

The IHS Markit Flash Composite Purchasing Managers Index (PMI), a good indicator of overall economic health, fell to its lowest level in six months at 54.2 in October from 56.2 in September, just below a previous “flash” estimate of 54.3.

“PMIs suggest that the eurozone’s economic recovery will slow significantly in the fourth quarter as supply shortages intensified across the region, especially for manufacturers,” said Jessica Hinds of Capital Economics.

“They also show that price pressures are intensifying, even at the periphery.”

A Reuters poll https://www.reuters.com/world/europe/ecb-raise-rates-2024-risk-remains-earlier-hike-2021-10-22 suggested last month that growth in the bloc would slow to 1.1% this quarter after growth of 2.0% in the third quarter.

The services PMI fell to a six-month low of 54.6 in October from 56.4, a notch below the preliminary estimate of 54.7 but still comfortably above the 50 mark separating growth and contraction.

Demand weakened, however, and the new business index fell to 55.1 from 55.3.

While eurozone manufacturing activity remained strong last month, it was held back by supply chain bottlenecks, a survey found on Tuesday.

These bottlenecks have caused raw material costs to skyrocket and the composite input price index rose from 70.9 to 73.2, by far the highest since the survey began in mid -1998.

“Inflation will peak at 4.5%. This is very high but is expected to decrease over the next year, we are already seeing promising signs in container transport for example,” Holger Schmieding told Berenberg.

Supply constraints caused growth to slow in Germany, Europe’s largest economy, for a third month and it was a similar picture in France, Spain and Italy.

In Britain, outside of the monetary union, businesses have grown faster, data released Wednesday showed, but the Bank of England is likely to be concerned about record increases in costs borne by businesses, that are passed on to consumers.

The BoE https://www.reuters.com/world/uk/boe-faces-decision-day-caught-between-inflation-slowdown-risks-2021-11-04 will deliver its most anticipated policy decision in years on Thusday. The bank must choose to push borrowing costs to an all-time high or say it waits to make sure the post-containment economy is ready for a rate hike.

In the United States https://www.reuters.com/business/us-private-payrolls-rise-strongly-october-adp-2021-11-03, a measure of service sector activity has reached a level record breaking last month as declining COVID-19 cases boosted demand, although businesses remained burdened by booming supply chains and the resulting sky-high prices. (Reporting by Shrutee Sarkar and Jonathan Cable; Editing by Catherine Evans)

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