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EUR/USD has entered a long term decline since summer

Wake Me Up for Eurozone Services When September Comes

Posted Tuesday, October 5, 2021 by
Skerdian Meta • 2 min read

The Eurozone economy was feeling quite weak until Q2 this year, while the US economy was running on all cylinders for about a year, beginning in Q2 of 2020. We saw another recession in Europe early this year, especially on the service front, due to lockdowns and other restrictions in Europe last winter.

But, in Q2 and Q3 in particular, the Eurozone economy started to recover, and it surged just like the US economy, with manufacturing and services above 60 points. Although, now that the summer is over, we are seeing a cool-off here as well. Services will take the hardest hit if there are renewed restrictions, and they are cooling off already. Below is the Eurozone services PMI report for September, and the main numbers from the main countries, all of which have fallen to pre-summer levels. EUR/USD is already slipping lower today, so we have to keep an eye on services as we head towards winter.

Eurozone September Services PMI, by Markit – October 5, 2021

  • September final services PMI 56.4 vs 56.3 prelim
  • Composite PMI 56.2 vs 56.1 prelim

Mild revisions but the final readings just serve to reaffirm some cooling in demand pressures, while supply-side constraints continue to weigh on Eurozone business activity towards the end of Q3. A quick snapshot:

 

Markit notes that:

“The current economic situation in the Eurozone is an unwelcome mix of rising price pressures but slower growth. Both are linked to supply shortages, especially in manufacturing, which has seen a steeper fall in output growth than in services.

“With supply shortages likely to continue to subdue manufacturing well into 2022, the economy has therefore become increasingly dependent on the service sector to sustain a solid recovery path. However, the service sector is also reporting a marked cooling of demand growth, which can be less easily explained by shortages, and is in part linked to customers being deterred by concerns over the persistence of the pandemic and by higher prices, as well as some moderation of spending after the initial reopening of the economy.

“Although for now the overall rate of expansion remains relatively solid by historical standards, the economy enters the final quarter of the year on a slowing growth trajectory. A drop in business confidence to the lowest since February adds further downside risks to the outlook.”

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