Europe’s Factories Sound Alarm Over Relentless Supply Squeeze

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European manufacturers are increasingly strained by global supply-chain problems that are pushing up prices and may last well into next year.

A gauge by IHS Markit measuring business activity in manufacturing fell last month by the biggest margin since April 2020 -- the beginning of the Covid-19 pandemic. Growth in new orders, output and employment slowed considerably.

“Supply issues continue to wreak havoc across large swathes of European manufacturing, with delays and shortages being reported at rates not witnessed in almost a quarter of a century and showing no signs of any imminent improvement,” Chris Williamson, chief business economist at IHS Markit, said in a statement.

Price pressures remained close to record levels, and companies passed on rising production costs to customers at a faster rate to protect their profit margins.

Euro-area inflation is expected to have quickened to above 3% in September, well exceeding the European Central Bank's 2% target. While most officials still insist the spike is temporary, longer-lasting supply-chain problems are seen as a key risk that could entrench higher price growth.

Reports out of Asia give room for some optimism that bottlenecks can soon be cleared. Manufacturing activity there rebounded in September after Covid-19's grip on several countries loosened, allowing the easing of lockdown measures that had crippled factories. 

Purchasing managers' indexes gained across Southeast Asia, which is recovering from one of the world's worst outbreaks, and Japan, Taiwan and trade bellwether South Korea stayed safely in expansion territory last month.

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