French and German PMI readings underscore the economic challenges going into year-end and next year
The key takeaway from the reports above is that supply and capacity constraints aren’t going anywhere any time soon. As such, given that they will persist through to next year, expect inflationary pressures to also keep up over the next few months at least.
In my view, the standout detail when it comes to gauging the impact of supply bottlenecks is the manufacturing output index. For France, that fell to a 17-month low and for Germany, that dropped to a 16-month low.
While some of that drag is offset by a better performance in the French services sector and more resilient German factory export orders, overall business activity still slumped for both economies and that says a lot about the impact of the issues above.
Expect the slowdown in Europe to be more pronounced in the months ahead, as supply bottlenecks will continue to stay the course and surging inflation pressures are also going to grow into a bigger problem for consumers/businesses.