Business activity in the eurozone shot ahead at its fastest rate in 21 years in July, a closely watched survey said on Friday, as the economy went into full throttle with loosened Covid-19 restrictions.

But the survey showed that the spread of the Delta variant was beginning to chip away at business confidence, with concern that new measures could again sow chaos in the economy.

The PMI composite index from economic data group IHS Markit said activity rose from 59.5 in June to a strong 60.6 in July, well above the 50-point level that indicates growth.

With the summer in full swing, Chris Williamson, chief economist at IHS Markit, said that tourism and hospitality sectors were especially responsible for pushing the economy to historic growth levels.

A return of tourism as pandemic restrictions have eased helped boost Europe's economic activity this month
A return of tourism as pandemic restrictions have eased helped boost Europe's economic activity this month AFP / Sameer Al-DOUMY

However, for manufacturers, supply chain delays remained a "major concern", hurting production and pushing costs higher.

This, he warned, would likely "feed through to higher consumer prices in coming months" and make itself felt in the inflation data.

Pointing to a darker days ahead, Williamson said the delta variant posed "a major risk to the outlook".

"Not only have rising case numbers led to a slide in business optimism to the lowest since February, further covid waves around the world could lead to further global supply chain delays and hence ever higher prices."

Coronavirus