How long can the summer resilience keep up?


There is a consistent theme across the manufacturing PMI readings in Europe today, that being a moderation to optimism and overall activity in general but they are still seen at elevated levels since the reopening and outweighing supply chain disruptions - for now.

That said, the outlook is certainly softening and that will be a concern going into Q4.

Growth conditions have likely peaked

That seems to be the suggestion as the optimism early in the summer wanes and while demand conditions are still strong, they are likely to ease towards the year-end.

Adding to that, businesses also face challenges in terms of capacity constraints and supply chain disruptions (alongside rising cost pressures) will only make things worse.

Supply chain disruptions still the main issue and likely to persist for longer

This has been a topic that we've been talking about and highlighting for many months now and while it may be more pertinent to the debate on inflation and it being 'transitory', it also has significant implications on economic activity.

As businesses struggle to sort out these disruptions, they risk shortage of raw materials and face even bigger capacity constraints moving forward.

Adding to that, rising cost pressures weigh on profitability and as such, said costs will likely need to be passed on to the consumer. That in turn will weigh on consumer sentiment as spending becomes much less attractive considering high prices.

Challenging months lie ahead

All of this points to a significantly tougher path for major economies to navigate through going into Q4 and Europe is no exception to that. Growth conditions are almost certainly going to come off the highs early in the summer and the fear is that the vicious cycle stirred up by supply chain disruptions is going to persist for longer than anticipated i.e. well into next year, weighing on economic activity further.