- Prior 52.8
- Composite PMI 50.2 vs 50.1 prelim
- Prior 50.9
Even with France underpinning growth amid the Olympics, the euro area economy is seen grinding to a halt in July. The manufacturing recession continues to be the main drag but the services sector is also starting to slow down as well. And that will be a worry for the ECB with inflation pressures continuing to persist to start Q3. HCOB notes that:
“The eurozone’s economy is growing at a snail's pace in July. Sector-wise, services is not picking up speed like it did earlier in the year, while the industrial slump has continued unabated. Because of this, the HCOB Composite Output PMI is just hovering above the expansion line. So, while the second half of the year started off pretty weak, the PMIs and the official numbers for economic growth in the second quarter were surprisingly good. Given this situation, our 0.7% growth forecast for the year is still conservative.
“You cannot miss the slowdown in the service sector. The PMI has dropped for three months straight to 51.9, companies have been more hesitant about hiring, and new business is barely ticking up. The extraordinary effects from the European Football Championships in Germany, the Olympics in France, and Taylor Swift's concert tour in Europe are winding down too. So, the service sector probably won't give us much of a boost in the second half of the year.
“There is still no relief from inflation. Sure, sales prices are climbing at the slowest rate in 38 months, and this generally applies to input costs too, but inflation is still pretty high given the weak economy. Over the past 25 years, selling prices have usually stayed flat on average when the PMI activity index was at 52.0 or lower, and historically, input prices rose much more slowly than they are now. We think this points to wage pressure caused by demographic shifts, making it harder for the ECB to hit its 2% inflation target.
“The slump in the service sector is happening across the eurozone. Growth has slowed down in Germany, Italy, and Spain. France is the only exception, where the PMI has gone up. But even there, the sector is hardly growing at all and is therefore still lagging behind the other countries.”
