The European economy continues to be crushed from losing their cheap energy supply from Russia and increasing interest rates to chase US Fed rate hikes with no end in sight, as detailed in the release of Flash Germany PMI and Flash Eurozone PMI yesterday.

Germany’s Composite PMI has cratered from July’s 48.5 to the current 44.7. Anything below 50 means production is shrinking, which is bad.

Note: Composite PMI shows the combination of both Manufacturing Output Index and Service Business Activity Index.

From the commentary:

Commenting on the flash PMI data, Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, said:

"Any hope that the service sector might rescue the German economy has evaporated. Instead, the service sector is about to join the recession in manufacturing, which looks to have started in the second quarter. Our GDP nowcast model, which incorporates the PMI flash estimate, now indicates a deeper fall of the whole economy than it did before, at almost -1%.

“Stagflation is an ugly thing. However, it’s exactly what is happening to the services economy, as activity has started to shrink while prices have shot up again, even picking up pace. When inflation cannot be tamed in the eurozone’s biggest economy, this is bad news for the ECB.

“Manufacturing output took another hit in August, dropping even faster. Having said this, there is a glimmer of hope that the downturn in industry is nearing its bottom. Indeed, the downward trend in the PMI measures of new orders and stock of purchases have lost momentum. This could well mean that the inventory cycle is only a few months away from a turnaround.

“The rate of decline in new export orders eased in August, though demand from abroad is still shrinking quickly. We take this development as the first tentative sign that the global economy’s industrial sector is about to stabilize sooner rather than later.

“The fall in services activity has only just started as new business declined for the second month in a row and companies showed reluctance to hire new staff. However, services companies seem to feel surprisingly bold jacking up prices at an even quicker rate."

Eurozone is not doing any better either, as the bloc falls into stagflation (sharp rise in unemployment while inflation remains elevated)

Commenting on the flash PMI data, Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, said:

“The service sector of the eurozone is unfortunately showing signs of turning down to match the poor performance of manufacturing. Indeed, service companies reported shrinking activity for the first time since the end of last year, while output in manufacturing dropped again. Considering the PMI figures in our GDP nowcast leads us to the conclusion that the eurozone will shrink by 0.2% in the third quarter.”

“ECB president Christine Lagarde sounded the alarm that the economy may be faced with higher wages and lower productivity, leading to higher inflation. It seems like those worries are about to turn into reality, at least for the vast service sector. For, in this sector input prices and thus wages increased at an accelerated pace in August. Meanwhile, stagnating employment combines with decreasing production and results therefore in lower output per head. As a result, the ECB may be more reluctant to pause the hiking cycle in September.”

“Is a bottom in sight in the manufacturing sector? Perhaps, as the PMI headline index, though still in shrinking territory, has increased somewhat. This happened on the back of a slightly better order situation as well as slower destocking. The higher confidence that output will be higher one year from now fits into this narrative. A real turnaround may only happen in the first quarter of next year, however, as the PMI starts from a rather low level.”

“The downward pressure on the economy of the eurozone in August stems mainly from the German service sector which switched from growth to contraction at an unusual pace, while the French service providers reduced their activity at a similar speed as the month before. In the manufacturing sector, Germany’s firms are reducing their output at a much faster pace than the French ones. This will only fuel the discussion of Germany being the sick man of Europe.”

The Flash United Kingdom PMI also showing the same trend - disaster ahead.

At this point, it is not even worth discussing about re-joining the EU, which is now a moribund case. Better look to Asia if they want to survive.