Eurozone Private Sector Moves Closer To Stagnation

The euro area private sector growth moved close to stagnation after the brief growth revival in the spring, survey results from S&P Global showed on Friday.

The flash composite output index fell to 50.3 in June from 52.8 in May. This was the lowest reading since January and also remained below economists’ forecast of 52.5, suggesting a considerable loss of growth momentum.

The principal area of weakness was manufacturing with factory output declining at the fastest pace since last October. The manufacturing Purchasing Managers’ Index slid to a 37-month low of 43.6, while the score was seen unchanged at 44.8.

After the recent resurgence in spending on services weakened, service sector output posted a slower growth. At 52.4, the HCOB services PMI dropped to a five-month low from 55.1 in May. The reading was also below forecast of 54.5.

“After Eurozone GDP fell for the second time in a row in the first quarter, the probability has increased somewhat that the GDP change will again carry a negative sign in the current quarter, due in part to weak services activity in France,” Cyrus de la Rubia, chief economist at Hamburg Commercial Bank said.

The downward trend in the composite index points to a difficult second half as companies across all sectors face deteriorating order books, the economist noted.

ING economist Bert Colijn said another quarter of negative GDP growth is not unimaginable. However, the current slump clearly remains mild enough for the European Central Bank not to change course on rate hikes.

The survey showed that new orders dropped for the first time since January. The deteriorating demand conditions signals downside risks to output in July.

Backlogs of work decreased at the sharpest rate in seven months, mirroring the sustained output growth amid falling inflows of work.

Employment growth weakened for a second straight month in June, with the pace of job creation the lowest since February.

On the price front, the survey showed that input cost inflation sank sharply in June to hit its lowest since December 2020. Average prices charged for goods and services increased at the weakest pace in 27 months.

Optimism among companies about the year ahead declined the most since last September, sliding to its lowest level so far this year. Overall confidence was far below the long-run average in both sectors.

The survey suggested that the weakness was led by France, where activity contracted for the first time since January as strikes added to economy‘s headwinds.

France’s flash composite output index fell more-than-expected to a 28-month low of 47.3 in June from 51.2 in May. Economists expected the private sector to continue expanding, with the index easing to 51.0. The service sector showed renewed weakness and manufacturing activity worsened further.

The services PMI registered 48.0 in May, down from 52.5 in the previous month and economists’ forecast 52.0. The manufacturing PMI hit a 37-month low of 45.5 compared to 45.7 in the previous month. The score was seen at 45.4.

Growth was close to a stand-still in Germany, contrasting with strong growth in three months to May. An increasingly severe downturn in manufacturing was accompanied by slower service sector growth.

The HCOB flash composite output index posted 50.8 in June, dropping from May’s 53.9. The score was seen at 53.5. This reflected a combination of a slower rise in services activity and a deepening downturn in manufacturing output.

The services PMI fell more-than-expected to 54.1 in June from 57.2 in the previous month. Economists had forecast the reading to fall to 56.2.

The manufacturing PMI unexpectedly slid to a 37-month low of 41.0 from 43.2 in May. The score was seen improving to 43.5.

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