European business activity contracted in August, falling to its lowest level in nearly three years.
The European Union’s Purchasing Managers’ Index (PMI) declined to 47.0 for August from 48.6 in July. This missed economists’ expectations for a figure of 48.8.
A reading above 50 marks an expansion in business activity, while one below 50 signals a contraction.
If pandemic months are excluded, the latest numbers point to the lowest reading for the European PMI in a decade – since April 2013.
Europe’s service sector appears to be turning downwards along with manufacturing, leading to the overall contraction in business activity.
The economy of the so called “Euro zone,” the 20 countries that share the same currency, grew by 0.3% in this year’s second quarter, having grown by 0.1% in Q1.
This lackluster growth shows that higher interest rates and energy prices are starting to have a significant economic impact in Europe, say economists.
Germany, Europe’s largest economy, reported the steepest contraction in business activity in August, which also fueled the slowdown across the continent.
The latest economic data has sparked a debate about what the European Central Bank (ECB) will do with interest rates going forward.
ECB President Christine Lagarde recently said that the central bank is likely to either raise or pause future interest rate hikes.
Analysts polled by Refinitiv expect that the central bank will most likely leave rates unchanged in September, holding its main interest rate steady at 3.75%.