After the remarkable improvement and two consecutive expansions in the euro zone and UK boosted by the growth of major sectors, the pace of expansion is predicted to ease in August amid the slowdown in global demand.
Starting off with the euro area, PMI manufacturing is predicted to ease to 55.0 from the previous 56.7, where the reading would linger at 58.2 in Germany.
The euro zone benefited in the first six months of the current year from the depreciation of the euro that slipped to four-year low against the dollar on the back of the escalating sovereign debt woes that started in Greece and spread to other euro-region economies.
Also, the latest second-quarter earnings refer that there was improvement in global demand as well as domestic demand that was spurred by the rise in household spending.
However, with the slowdown seen in global economies, led by the United States, the euro zone main trading partner, a decline may be witnessed in overseas sales which will affect major sectors, especially in some economies that rely heavily on their exports such as Germany.
The euro rebounded in July but pared some of that advance in August after a flurry of pessimistic reports which caused investors to leave high-yielding and risky assets and resort to refuges as safe havens on fears global recovery is losing steam.
Other important data released this week is expected to show that PMI services final reading is expected to drop to 55.6 from the previous 55.8, while second-quarter GDP will remain unrevised at 1.0% growth on the quarter and 1.7% on the year.
Yet, growth forecasts released this week by the ECB will be under scrutiny as analysts await the projections to predict the recovery outlook in the euro area and whether it will follow the suit of the US and UK which lowered their growth estimates for 2010.
In the United Kingdom, manufacturing expansion will ease to 57.0 in August from 57.3, whereas services would also slide to 52.9 from 53.1, according to median estimates.
The latest growth forecasts by the BoE witnessed a lowering to 3.0% from 3.6%. On the other hand, this week the British Chambers of Commerce (BCC) raised growth forecasts for 2010 and 2011 to 1.7% and 2.2% from 1.3% and 2% respectively, yet it expects the borrowing cost to remain steady at 0.50% till the second quarter of 2011 as planned spending cuts may drive the economy into recession once again.
Thus, meanwhile European economies are moving into embracing phase where they will determine the next path amid the high debt and announced austerity measures that are expected to shave growth.
