Euro area’s economic activity falls in August

Bloomberg

Euro-area economic activity declined for a second month, signalling that fears of a recession may already be coming to pass as record inflation saps demand and weakness seeps into more and more sectors.
While August’s drop was driven by manufacturing, the post-lockdown rebound in services like tourism almost ground to a halt as consumers face steep gains in energy and food costs, according to business surveys by S&P Global.
The data “point to an economy in contraction during the third quarter,” S&P Global economist Andrew Harker said on Tuesday in a statement. “Declining output is now being seen across a range of sectors, from basic materials and autos firms through to tourism and real estate companies as economic weakness becomes more broad based in nature.”
Germany was a particular weak spot, posting the sharpest decline in output since June 2020 as it rushes to reduce dependence on Russian natural gas amid drops in shipments following the war in Ukraine. In France, activity contracted for the first time in a year and a half.
The survey at least revealed some signs that price pressures are peaking, with growth in input and output costs both softening.

The situation presents a dilemma for the European Central Bank, which is raising interest rates to curb the hottest inflation in decades, even as uncertainty about the outlook is high and economic momentum fades.
The survey at least revealed some signs that price pressures are peaking, with growth in input and output costs both softening.
“This should help to feed through to slower consumer-price inflation later in the year, although it appears that any alleviation to the inflation situation is coming too late to provide any real support to demand,” Harker said. “The remainder of 2022 is therefore looking to be one of struggle for firms across the eurozone.”
Other parts of the world are also seeing downturns. Data earlier Tuesday showed activity contracted in Japan and Australia, though economists predict improvements in manufacturing and services in the US, and the UK remained in expansion territory.