December 4, 2022

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Takeaways from the euro area services PMI readings today

1 min read

The services sector is booming in the midst of summer

The readings today reaffirm solid and elevated growth conditions in the services sector in Europe, as looser virus restrictions continue to set the stage for a broader recovery in key areas especially the tourism, travel and hospitality area.

Employment conditions have also shown solid improvements since the reopening and that bolsters the overall strength and nature of the recovery.

For now, it looks like pent-up demand is still playing a key role in sustaining the elevated pace of the recovery but in that sense, it also poses a risk to growth once conditions start to normalise in the months ahead.

Inflation pressures in services are not quite as drastic as in the manufacturing sector but there are spillovers and that is seeing input costs rise dramatically as a result.

For now, businesses still have more pricing power than consumers but should conditions normalise and the elevated price pressures continue to persist, that might start to bite at consumer demand – thus weighing on business activity.

That will be the balance to watch in the months ahead when it comes to euro area economic growth conditions, adding to that in the manufacturing sector here.

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