Eurozone business activity had a stagnant growth last month due to a sluggish progress in the service sector and an accelerated decline in manufacturing, according to a survey unveiled on Monday. The composite Purchasing Managers’ Index (PMI) for the monetary union, established by S&P Global and seen as an accurate measure of broad economic status, dipped to 50.2 in July, down from 50.9 in June. Despite barely surpassing the 50 point that differentiates growth from contraction, it did surpass a preliminary estimate of 50.1 and has remained in the positive growth area for five months straight.
Comparatively, a survey in the UK showed a boost in growth last month, recording the highest demand levels in over a year. This mild recovery comes after the results of the general election, which brought a greater sense of certainty for businesses. The S&P Global UK services PMI survey tallied at 52.5 in July, slightly up from 52.1 in the preceding month, slightly outperforming economists’ expectations.
Cyrus de la Rubia, Hamburg Commercial Bank’s chief economist, commented, “The economy of the euro zone in July has been growing at a lethargic pace. Services have not accelerated like they did earlier and the industrial setbacks continue without any hindrance.”
In Europe, the services sector in France, which is in a dominant position, witnessed growth – advancing to 50.1 from 49.6 in June – fostered by the business coming from the Olympic Games. Conversely, in Germany, there was a decrease in growth for the second month consecutively in July – falling to 52.5 from 53.1 – indicating that Europe’s largest economy is decelerating.
In Italy and Spain too, the growth rate slowed down.
“If the service sector halts, the entire economy could potentially enter a recession as manufacturing continues its drastic decline,” expressed Mr. de la Rubia. “Regrettably, a recession is no longer a remote possibility.”
The final PMI for the services industry across the euro zone decreased to 51.9 in the previous month from 52.8, aligning with a preliminary estimate. The manufacturing PMI that was announced last week revealed that factory production stagnated, displaying a contraction with the fastest decrease this year.
The evidence is stacking up to suggest there’s unlikely to be a rapid recovery, as general demand throughout the region declined for the second continuous month – and at a heightened rate compared to June. The comprehensive new business index experienced a drop to 49.0 from 49.4.
This slump took place even as companies increased their prices at a less rapid rate in July compared to June. The inflation within the services sector – a key area observed by the European Central Bank (ECB) – observed a decrease and the output price index of the industry descended to 52.9 from 53.5. This marked the lowest point since May 2021, and it could potentially provide ECB with the leeway to further relax their policies.
After the execution of a highly anticipated rate reduction in June, the ECB sustained its deposit rate at 3.75 per cent the previous month. However, it’s predicted to cut it twice again within this year, possibly as early as September, according to a Reuters poll. – Reuters
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