Photographer: Jasper Juinen/Bloomberg

Euro Area Faces Capacity Bottlenecks as Recovery Gathers Pace

Updated on
  • PMI signals second-quarter economic expansion of 0.7%: Markit
  • Reading for June shows slip to 56.3, exceeding first estimate

Euro-area businesses are struggling to hire workers fast enough to meet increasing demand as the recovery strengthens.

“Operating capacity is being strained despite the region seeing the best spell of employment growth for a decade,” said Chris Williamson, chief business economist at IHS Markit in London. “Rising demand is also boosting firms’ pricing power, both for goods and services.”

Increased staffing, robust inflow of new orders and companies’ ability to ask for higher prices are welcome news for the European Central Bank, where officials are preparing to discuss how to unwind unconventional stimulus. Some policy makers have argued that while an accommodative stance is still warranted, there will soon be room to phase out some of the crisis-induced measures.

A Purchasing Managers’ Index for manufacturing and services signals economic expansion of 0.7 percent in the second quarter, despite a slight slowdown in activity in June, IHS Markit said. The gauge dipped to 56.3 from 56.8 in May, exceeding a June 23 estimate of 55.7, according to the report.

For the first time in more than three years, output increased in all nations covered in the survey. The region’s four largest economies -- Germany, France, Italy and Spain -- probably saw growth accelerating in the April-June period.

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