Michelle ThompsonA number of surveys released on Tuesday revealed that the pace of economic activity around the world continued to weaken last month as services companies struggled to meet poor demand caused by rising prices and borrowing charges that forced indebted consumers to cut back on spending.
The situation in the euro zone was worse than initially anticipated as the bloc’s leading services industry entered contractionary territory, raising the possibility of a possible recession.
The services sector in France shrank more than initially anticipated, while Germany had its first contraction this year. Its survey revealed the greatest business downturn in seven months in Britain, which is outside of the European Union.
The surveys conducted in Asia for August were less optimistic than usual, with China’s services activity growing at its weakest rate in eight months and India’s development slowing down as well.
Japan stood out as an anomaly as its service sector activity increased at its fastest rate in three months, supported by strong consumer spending as inbound tourism picked up speed.
Tuesday saw a decline in global equities as concerns over China’s faltering post-pandemic economy were revived by the dismal figures.
RBC researchers stated that “weaker economic data out of Asia was the main driver of market sentiment.”
The S&P Global-compiled HCOB final euro zone Composite Purchasing Managers’ Index (PMI), a reliable indicator of overall economic health, fell to 46.7 in August from July’s 48.6 and reached a low not seen since November 2020.
That was less than a prior estimate of 47.0 and below the 50-point threshold that separates expansion from contraction for a third month.
According to data released on Tuesday, the euro zone’s gross domestic product will decline by 0.1% this quarter, according to S&P Global.
“The already-low values indicated in the flash measure two weeks ago were reduced lower in the final PMIs published today. According to Adrian Prettejohn of Capital Economics, “we still expect a recession in the second part of the year.
The new business index, a measure of demand, fell further below breakeven to 46.7 from 48.2, a low not seen since early 2021, and as a result, the headline services PMI for the bloc fell to 47.9 from 50.9, below the flash 48.3 estimate.
Nevertheless, a companion survey released on Friday indicated that the manufacturing slowdown eased last month, suggesting that the worst may be over for the bloc’s struggling industries.
British, German, French, Italian, and Spanish services PMI ratings were all below breakeven.
“The services PMI for August indicated a decline in UK private sector activity. The long-term outlook is bleak, according to Martin Beck, principal economic advisor to the EY ITEM Club forecasting group, even if the EY ITEM Club still believes that GDP will expand marginally in Q3.
PAIN IN ASIA
The Caixin/S&P Global services PMI for China decreased from 54.1 in July to 51.8 in August, the lowest result since December when COVID-19 kept many consumers inside.
The information was mostly consistent with the official services PMI, which was released last week and indicated the sector’s sustained downward trajectory.
Following the survey, Chinese markets dropped, and the euphoria sparked by Beijing’s most recent stimulus measures also waned.
India’s overall situation remained favorable even if its PMI dropped from 62.3 to 60.1.
The PMI for Japan defied the trend and increased from 53.8 to 54.3 last month.
According to Pantheon Macroeconomics’ Duncan Wrigley, “The Bank of Japan will be encouraged by the signs of stronger employment in the services sector, but concerned about the persistence of cost pressure.”
The manufacturing index still indicates diminishing activity, and Japan is still some distance from achieving a path of sustained domestic demand-driven growth, according to the overall picture.
