The Day at a Glance | August 31 2021

The Top

*China`s economy contracted during August because of the virus.

*Inflation recorded a 3% increase in Europe, its highest level in a decade; underlying inflation accelerated (1.6%) to its highest level since 2012.

*OPEC+ will have a meeting tomorrow; its plan to increase crude oil production in 400 thousand daily barrels is expected to continue.

Economic environment

China logged an economic contraction during August. Official PMIs for China`s economy logged the first contraction in activity since February 2020. The Composite PMI set at 48.9 (vs 52.4 prev.), in contractionary territory after a strong fall in activity in the services sector (47.5 vs 53.3 prev.) due to the implementation of mitigation measures during the month in efforts to control the virus. Manufacturing activities didn`t recede (50.1) but they slowed down for a third consecutive month in light of persistent disruptions in supply chains; despite an improvement in the construction sector. Figures confirm a considerable slowdown in the world`s second largest economy and reaffirms expectations of seeing authorities carry out greater stimuli. The government has pointed out that it could increase spending throughout the rest of 2021 in order to back growth, while the central bank is preparing to carry out actions focused on reducing borrowing costs for some sectors. The contraction seen in the services sector reflects a more severe impact than expected – caused by the Delta variant – after the government imposed quarantines and travel restrictions in August; but recovery is expected in the following months as the virus`s outbreak was controlled successfully.

Inflation accelerates in Europe. The fist estimates for inflation in Europe during August surprised to the upside, with a 3% annual rate, its highest level in the last decade. Underlying inflation was especially a surprise as it increased to its highest level since 2012 (1.6%) and sent signals that pressures on prices could be less temporary than expected. The figure is not expected to affect the European Central Bank`s accommodative stance in the short term, however, it will be another argument for those who wish to start the withdrawal of emergency programs and less accommodative statements regarding interest rates. Most members still expect inflation to be temporary and estimate it will slow down next year, without any risks of overheating. However, inflation remains in place as a high risk in light of significant problems in the transportation of goods and inputs that have increased prices; issues that could extend to 2022.