Private sector activity in the euro area fell in July, hitting its lowest level in five months. The composite PMI fell to 50.1, indicating near stagnation, raising concerns about the strength of the recovery.
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Eurozone private sector activity fell well below expectations in July, hitting a five-month low, raising questions about the strength of the recovery in the second half of the year.
Preliminary data from the Purchasing Managers’ Index (PMI) survey showed the euro zone private sector was largely stagnant in July. The composite PMI fell from 50.9 in June to 50.1 in July, the lowest level since February and also below expectations of 51.
This decline is due to slower growth in services and worsening contraction in manufacturing. The services PMI fell to 51.9 from 52.8, its lowest level in four months, missing expectations for a rise to 53. The manufacturing PMI fell slightly from 45.8 to 45.6, contrary to expectations for a rise to 46.1, the lowest level for manufacturing since December. 2023.
The near stagnation in business activity was reflected in sluggish demand. New orders fell for the second month in a row, business confidence hit a six-month low and companies suspended hiring efforts that began earlier this year.
Input cost inflation accelerated, but weak demand forced companies to raise selling prices more slowly, leaving the pace of rate inflation at its lowest level since October last year.
Dr. Cyrus de la Rubia, chief economist at the Hamburg Commercial Bank, said: “Is this a summer lull? The eurozone economy was pretty static in July, so it feels a lot like that.” commented.
“Anecdotally, French service providers increased their business activity in July in preparation for the Olympics. In contrast, demand in Germany’s manufacturing sector appears to have depressed overall private sector production,” he said. added.
Mr. Dell’Albia suggested that slowing growth could strengthen arguments for the European Central Bank (ECB) to cut interest rates in September.
Germany’s economic woes, Olympics help France
The eurozone’s two largest economies, Germany and France, continued to underperform the broader region, although there are notable differences.
Germany’s composite PMI in July was 48.7, down from 50.4 in June, the lowest level since March, and falling short of expectations of 50.7. Growth in the services sector slowed, with the PMI falling from 53.1 to 52. Manufacturing PMI fell from 43.5 to 42.6, marking the 24th consecutive month of contraction in the sector.
“This appears to be a serious problem. The German economy has once again fallen into contractionary territory, dragged down by a sharp and dramatic decline in manufacturing production,” Dell’Albia said.
“The problem is a variety of structural issues. The most important factor affecting German manufacturing is that German car and machinery manufacturers are losing global market share to Chinese competitors. Unfortunately, , this problem remains,” he added.
France’s composite PMI improved slightly from 48.8 to 49.5, indicating that the economic downturn is not as severe. This improvement was led by the services sector, which returned to growth with the PMI rising from 49.6 to 50.7, boosted by Olympic preparations.
Norman Liebke, economist at Hamburg Commercial Bank, said: “The Olympics are stimulating the French economy. Business activity for French service providers rose for the first time in three months. Anecdotal evidence suggests this is partly due to the Olympics. “It’s the influence of this,” he said. Additionally, businesses reported an increase in output following the end of the election period, which provided more certainty. ”
France appears poised for a services-led recovery in the second half of the year, but as Liebke pointed out, inflation remains a challenge. Input prices rose due to soaring raw material costs, and the rate of increase in selling prices was the largest in the past three months.
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market reaction
The euro, which fell 0.3% on Tuesday, continued its decline on Wednesday morning, with the euro-dollar exchange rate down 0.2% to 1.0830.
The euro also weakened against the Japanese yen, falling by 0.7%, making euro/yen its fourth consecutive negative session.
Eurozone government bond yields generally fell, with short-term maturities moving more, reflecting heightened investor expectations for interest rate cuts from the European Central Bank.
In Germany, the yield on two-year bonds fell 5 basis points to 2.72%, close to its lowest level since mid-February 2024. German federal bond yields fell 4 basis points to 2.42%.
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Eurozone stocks were hit hard, with the Euro STOXX50 index down 1% by 10:30 a.m. Central European Time. France’s CAC40 index was the worst performer among member countries, with heavy losses for luxury goods giants LVMH Moët Hennessy Louis Vuitton, Kering and Hermès International, which fell 5%, 3.3% and 2% respectively, dropping 1.7%. It fell.
Germany’s DAX fell 1%, plunging more than 6% after Deutsche Bank warned of continued pressure from its exposure to commercial real estate.
