Euro area economic expansion slowed sharply as surging prices curbed the rebound from pandemic restrictions and factories continued to suffer from supply snarls.
An indicator for economic activity by S&P Global falls to a 16-month low in June, driven by rampant inflation, concerns over energy and rising borrowing costs. While the overall gauge still signals modest expansion, manufacturing output declined for the first time in two years.
“Economic growth is showing signs of faltering as the tailwind of pent-up demand from the pandemic is already fading, having been offset by the cost-of-living shock and slumping business and consumer confidence,” S&P Global economist Chris Williamson said in a statement.
Preliminary numbers from Australia, Japan and the UK showed continued growth in all three economies, though the British report signaled that businesses are bracing for a deeper economic slump in the third quarter.
In Europe, Russia’s war in Ukraine sent the cost of energy and a widening range of staples soaring just as pandemic restrictions eased. The prospect of higher interest rates, meanwhile, is rekindling concerns over public debt.
The survey of purchasing managers continued to show elevated price pressures, including a “worrying increase in costs growth in the service sector.” The cooling of demand, however, pointed to a calming of goods prices, “bringing a tentative hint of a peaking of inflation in the near future,” Williamson said.
Still, despite the grim outlook, the ECB said certain factors could still help to bolster momentum in the region.
“There are also factors supporting economic activity and these are expected to strengthen over the months to come,” it said in its Economic Bulletin published Thursday. “The reopening of those sectors most affected by the pandemic and a strong labor market, with more people in jobs, will continue to support incomes and consumption. In addition, savings accumulated during the pandemic are a buffer.”