The economic progression in the euro zone has considerably decelerated due to a weaker-than-anticipated expansion in the service sector and dramatic decreases in manufacturing, notably in Germany, as revealed by a frequently monitored business survey. The Eurozone Purchasing Managers’ Index (PMI) reveals that business activities nearly came to a standstill this month, as the composite index dipped to its lowest in five months, barely above the 50-point threshold distinguishing growth from decline. The figures, released by S&P Global on Wednesday, were softer than the projections offered by a Reuters economists’ survey which predicted a minor increase from 50.9 to 51.1.
Analysts caution that issues such as trade disputes and political instability may instigate a downturn in the growth of the second quarter, the figures for which will be unveiled next week. “The weak data cast doubt on the significant economic revival many economists anticipated for the latter half of the year,” according to Vincent Stamer, economist at Commerzbank research. He pointed out that such strong concerns were particularly relevant to Germany, the largest economy in the block.
On an in-depth level, the PMI data signalled an ongoing split between the manufacturing sector and the more extensive services sector. The index for services slid from 52.8 to 51.9, and the manufacturing index edging down from 45.8 to 45.6. The euro zone economy remained static for a good part of the previous year but showed signs of recovery in the first quarter, increasing by 0.3 percent, as inflation decreased more drastically than salaries, thus enhancing the purchasing power of households.
In the viewpoint of S&P Global, the economy made scarce progress in July, with entities in the currency block stating a consecutive two-month slump in orders, which brought an end to the recent rise in employment and pulled confidence in the next year to a six-month low. Chief Economist at Hamburg Commercial Bank, Cyrus de la Rubia, highlighted the growing concern over the steady job cuts in the manufacturing sector. However, he suggested there might still be a chance for improvement, given that employment drop is not as significant as output decline.
The hospitality industry in Ireland is currently under the perception of its customers that they are not receiving value for their money. This came to attention after the European Central Bank (ECB) decided to maintain its current rates. According to the ECB president, Christine Lagarde, the economic growth is potentially at risk with a downward trend. The services sector appears to be in the lead, while manufacturing has seen a downturn in recent times, along with persistently weak investment.
Companies within the eurozone are facing the worst cost pressures in three months, as discovered by S&P. Yet these pressures haven’t been fully pushed onto their customers as the overall selling rates increased at the slowest speed since last October, due to a rise in services cost and a similar fall in manufacturing.
Economists predict a likelihood of ECB slashing interest rates in their forthcoming meeting in September as a response to the grim growth forecast. Nonetheless, brisk wage growth leading to stubborn inflation in services sector might be a matter of worry for policymakers.
Franziska Palmas of Capital Economics opined that the blend of economic slump and persistent high price pressures provides a backup for both hardliners and pacifists. However, there is a greater likelihood of a rate cut in September.
Optimism spread within France’s service companies, which have noticed a gradual increase in activities ahead of the Olympic Games. The relief was heightened when extreme right or left parties didn’t bag majority in the recent parliamentary elections, even though forming a government remained challenging for the nation.
The French PMI witnessed a rise to 49.5 from a three-month high of 48.2, surpassing economists’ predictions. On the other hand, Germany’s PMI figures fell from 50.6 to 48.7, indicating a contraction of business activities and a decline in factory output at the quickest pace in nine months.
However, German consumers displayed increased confidence, outpacing the forecasted rates this month, as revealed by separate surveys by GfK and the Nuremberg Institute for Market Decisions. They believe the Euro 2024 football tournament could have contributed to a boost in consumer outlook 3.2 points to -18.4, which beats economists’ outlook for a modest bump to -21.
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