Welcome to your weekly macroeconomic round-up, where we spotlight a few of the most significant events in the last week.
UK survey data shows activity growth slowed sharply in July as Delta variant spread
PMI surveys, which indicate how confident managers are feeling about the outlook for their business, suggested that growth in business activity fell to its lowest level in nine months in July, as the composite PMI fell from 62.2 to 57.7. Although this is significantly lower than economists’ expectations, it still suggests that activity is expanding but at a slower rate than previously. Both services and manufacturing indicators fell more than expected over the month but remained in expansionary territory.
Underlying the data, respondents highlighted that price pressures continued to mount, while some noted that, “severe shortages of raw materials and the impact of COVID-19 isolation on staff availability” resulted in a drop in output.
German business expectations fall sharply in July with 64% of industrials companies reporting supply bottlenecks
The German IFO Business Climate survey showed that business expectations for the next six months fell sharply in July, falling from 103.7 to 101.2. The institute’s Business Climate index, which includes an assessment of the current conditions, fell from 101.7 in June to 100.8 in July. Respondents highlighted that rising COVID-19 cases in Germany, as well as ‘supply bottlenecks for preliminary materials’, were weighing on their ability to fulfil orders.
The breadth of shortages has been increasing steadily such that 64% of German industrial firms are now reporting the presence of bottlenecks, as well as 60% of wholesalers and 43% of retailers. Their problems will only have been made worse by the flooding experienced in western Germany last week.
Markets
Global equity markets recovered last week following a brief sell-off the week prior that seems to have been triggered by Chinese regulatory concerns and rising cases of the COVID-19 Delta variant. The narrative surrounding China’s recent crackdown on tech companies, such as Alibaba and DiDi, received a further shock last week as authorities turned their attention to the online school tutoring sector in China, which has experienced exceptional growth in recent years. Criticisms focus on the false advertising and ‘disorderly development’ of the industry – a curious departure from the recent regulatory escalations. Essentially, the legislation will prohibit any private company from profiting from private tutoring with some clauses that specifically prohibit foreign involvement – another worrying sign for foreign investors in Chinese companies.
Look out for next week’s update, where we’ll be focusing on US GDP, Japanese business confidence and European confidence surveys.
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