Business growth in the eurozone slowed sharply last month, as a strong expansion in the dominant services industry failed to offset a further deterioration in manufacturing, according to a survey.
Composite PMI drops, remains in expansion territory
HCOB’s composite Purchasing Managers’ Index (PMI) for the currency union, compiled by S&P Global and seen as a gauge of overall economic health, dropped to 50.9 in June from May’s 12-month high of 52.2. The index remained just above the 50 mark separating growth from contraction, but the slowdown was evident.
Services sector drives growth
Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, noted 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.”
Services PMI dips, manufacturing weakens
The services PMI dipped to 52.8 last month from 53.2, but was still ahead of the initial 52.6 estimate. In contrast, manufacturing activity across the bloc took a turn for the worse, as demand fell at a much faster pace despite factories cutting their prices.
Demand weakens across the board
The composite new business index, which tracks overall demand, slumped below the 50 break-even mark for the first time since February, registering 49.4 compared to May’s 51.6. This occurred despite the European Central Bank (ECB) delivering a widely predicted interest rate cut in June.
ECB expected to cut rates further
The ECB is expected to implement further rate cuts in September and December, according to a Reuters poll. However, strong wage data and persistent price pressures have increased uncertainties around the rationale for more cuts.
Input and output cost pressures did ease, with charges levied by services firms rising at the slowest pace in over three years.
Read more: Eurozone business activity shows signs of recovery, with services sector leading the way
ECB faces cautious outlook
De la Rubia noted that the ECB “is getting some support for this decision from the HCOB Services PMI price indices,” but added that the central bank “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.”
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