Euro zone business activity soared in June as lockdowns lifted | Reuters

Euro zone businesses expanded activity at the fastest rate in 15 years in June as the easing of more coronavirus restrictions brought life back to the bloc’s dominant service industry, a survey showed on Monday.

But that surge in growth has come at a cost as inflationary pressures mounted due to labour shortages and disruptions to supply chains caused by the pandemic.

IHS Markit’s final composite Purchasing Managers’ Index (PMI), seen as a good gauge of economic health, jumped to 59.5 last month from May’s 57.1, its highest level since June 2006.

That was ahead of the 59.2 “flash” estimate and well above the 50 mark separating growth from contraction.

“Europe’s economic recovery stepped up a gear in June, but inflationary pressures have also ratcheted higher,” said Chris Williamson, chief business economist at IHS Markit.

“Business is booming in the euro zone’s service sector. Added to the impressive growth seen in the manufacturing sector, the PMI surveys suggest the region’s economy is firing on all cylinders as it heads into the summer.”

An acceleration in vaccination programmes on the continent has meant governments have allowed more of the services industry to re-open and its PMI soared to 58.3 from 55.2, ahead of the flash 58.0 estimate and its highest reading since July 2007.

A PMI covering manufacturers, released last week, showed factory activity expanded at its fastest pace on record in June but that they faced the steepest rise in raw materials costs in well over two decades.

Those inflationary pressures were also felt by the services industry and the composite input prices index bounced to 69.8 from 66.8, the highest in nearly 21 years.

Although inflation risks are skewed to the upside the European Central Bank was expected to maintain its loose monetary policy and look through higher inflation expectations for a while before it acts, a Reuters poll found last month.

With demand surging, and amid hopes of further easing of restrictions leading to a more normal way of life, optimism about the coming year improved. The services business expectations index climbed to 72.7 from 71.2, its highest since August 2000.

“A wave of optimism that the worst of the pandemic is behind us has meanwhile propelled firms’ expectations of growth to the highest for 21 years, boding well for the upturn to gain further strength in coming months,” Williamson said. (Reporting by Jonathan Cable; Editing by Toby Chopra)

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