- Prior 53.2
- Composite PMI 50.9 vs 50.8 prelim
- Prior 52.2
Both the services and composite readings are three-month lows, reaffirming a slowdown in the economy towards the end of Q2. Of note, demand for euro area goods and services decreased for first time since February. The good news is that as a whole, price pressures are seen cooling a bit more but are still above pre-pandemic levels. Looking to individual performances, the German economy is seen more sluggish in June and is the main drag but should rebound back in July amid the Euro 2024 tournament. HCOB notes that:
“Growth in the Eurozone can be attributed fully to the service sector. While the manufacturing sector weakened considerably in June, activity growth in the services sector continued to be nearly as robust as the month before. Considering the upward revision versus the preliminary flash PMI figures, the chances are good that service providers will remain the decisive force keeping overall economic growth in positive territory over the rest of the year.
“Encouragingly, the recovery in the service sector is mostly broad-based when considering the top four Eurozone economies. In June, Spain was again well ahead of Germany and Italy, but both showed a fast growth pace. Only France’s service providers were unable to increase their activity. In a sign of optimism, companies hired more people in all top four euro countries, which is in line with the view from survey respondents that activity will be much higher in a year from now, especially in Italy, where the mood has improved from an already good level.
“The European Central Bank (ECB), which cut interest rates in June, is getting some support for this decision from the HCOB Services PMI price indices. Input prices and the prices charged to clients increased at the slowest pace in three years. Looking forward, the ECB will remain cautious, as the price increases are still way above pre-pandemic averages and still unusually high given the fragile state of the economy.
“The service sector, in our opinion, is supported by the high number of tourists. The New Export Index, which includes tourism, has been on an almost continuous upward trend for six months and is now nearly two points above the long-term average. According to private statistics, arrivals of travellers to Europe, including an unusually high number from the USA, increased by 7.2% in the first quarter of 2024 compared to the same period last year and is now above the pre-COVID-19 level. In Germany, tourism is getting an additional boost from the European Football Championship. For the next few months, tourism is likely to remain an important growth factor for the Eurozone.”