July eurozone economic output fell at the fastest rate in eight months, signaling a weak start to the third quarter. The worsening of the indicators that anticipate future trends such as the index of forecasts of future activity and that of new orders received show a possible worsening of the contraction for the next few months, thus prompting companies to abandon their personnel recruitment plans.
There pressure on prices has meanwhile marked a decline, with average selling prices showing the slowest rise in almost two and a half years. The selling prices of manufacturing companies, due to the collapse in demand, have fallen at a rate not seen since the peak of the financial crisis of 2009, while the inflation of the selling prices of service companies has decreased to its lowest level in 21 months.
The seasonally adjusted HCOB PMI Flash Eurozone Composite Output Index, calculated on the basis of around 85% of the usual survey responses, decreased to 48.9 from 49.8 in June, recording the lowest value since last November. After 5 months of consecutive monthly growth, the latest value signaled the second consecutive monthly contraction in output. The rate of contraction has gained ground after the marginal decline recorded at the end of the second quarter.
Analyzing the growth values of the eurozone countries, the France reported a particularly steep contraction in activity, falling for the second consecutive month and at the fastest rate since November 2020. Excluding the pandemic period, the decline was the largest since May 2013. Rates of contraction accelerated in both manufacturing and services, although the latter suffered a larger decline. Also there Germany fell into contraction, with output declining for the first time since January and at the fastest rate since last November. The sharp decline in Germany’s manufacturing output, which worsened at a rate not seen since 2009, excluding the months of pandemic restrictions, combined with the vigorous slowdown in the growth of services activity. This slowdown in services was in turn caused by the sharp drop in new orders. Meanwhile, the rest of the region overall, it reported only very slight growth for the second consecutive month. This is the weakest performance since the beginning of the year and reflects an increasingly severe contraction in the manufacturing sector and weakening growth in the demand for services.
Commenting on the flash PMI data, Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, said: “Manufacturing continued to be the Eurozone’s Achilles heel. In July, manufacturing reduced their output levels again at an accelerating rate, while tertiary activity continued to expand, albeit at a much weaker rate than at the beginning of the year. With the services sector continuing to lose steam, the eurozone economy could move deeper into contraction territory in the coming months. To these gloomy prospects in addition, for the first time since the end of 2022 and the beginning of 2023, the PMI composite indices relating to new orders and those on outstanding work have fallen into contraction territory. This trend is particularly evident in the manufacturing sector: this insinuates the idea of a slowdown that will most likely continue as we proceed in the second half of the year. The HCOB PMI failed Bloomberg’s expectations of a slight slowdown in the manufacturing decline and a more resilient picture for the services sector. The latest PMI data will not please ECB officials as private sector prices, driven solely by the relevant services sector, continue to show pitfalls. The president of the ECB Christine Lagarde – concludes Cyrus de la Rubia – will certainly continue to remain of her own idea of raise interest rates by 25 basis points at the next monetary policy meeting at the end of July”.
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