Eurozone recovery falters as industrial sector hits new lows
The latest PMI indicator for the eurozone signals an apparent slowdown in economic recovery. The PMI Composite Index for the eurozone dropped 50.1 points from 50.9 points in June, reaching its lowest level in five months. This result indicates an almost complete halt in activity growth.
According to the S&P Global report, which compiles the PMI index for Hamburg Commercial Bank (HCOB), the PMI index for services in the eurozone fell to 51.9 points from 52.8 points in June. Meanwhile, the industrial sector deepened its declines – the PMI index for industry decreased to 45.6 points from 45.8 points, reaching its lowest level in seven months.
"Is this the summer lull? It feels a bit like it as the Eurozone economy barely moved in July" said Oscar de la Rubia, an S&P expert, in a commentary on the data.
Industry in recession, services losing momentum
The situation in the eurozone's industrial sector is particularly worrying. The industrial production index fell to 45.3 points from 46.1 points in June, marking the lowest level in seven months and the sixteenth consecutive month of declines. New orders in the industry fell at the fastest pace since December, indicating continued weak demand.
Dr. de la Rubia highlights the problems in the industrial sector. He observes that it is concerning how consistently firms in the manufacturing sector are reducing employment month after month.
Although the services sector is still growing, it shows signs of slowing down. The HCOB economist notes that while Germany struggles with growth, the upcoming Olympic Games drive the French economy.
Inflation prospects and ECB decisions
The report indicates ongoing inflationary pressure. Dr. de la Rubia notes: "Prices data did not provide hope for relief. Input prices in the services sector increased at a faster rate and selling prices rose at a similar pace to the previous survey period."
The economist highlights the implications of this data for European Central Bank policy: "Our conclusion is that while a September rate cut will most probably be exercised, it will be much trickier to follow this path in the months thereafter, unless the downturn morphs into a deep recession."
Despite the overall worsening situation, the report indicates that growth in the third quarter is still possible according to HCOB's GDP Nowcast forecast. Nevertheless, the ongoing slowdown in the industry and weakening dynamics in services cast doubt on the strength of the economic recovery in the eurozone in the second half of the year.
