June’s sharp fall in the Eurozone flash composite PMI suggests that the soft patch has also arrived in continental Europe. The decline in the headline private-sector activity index, from 55.8 to 53.6 was much larger-than-expected (consensus: 55.2) and left it at the lowest level since October 2009. The manufacturing PMI tumbled from 54.6 to 52.0, an 18-month low; the industrial sector is clearly feeling the pinch of the slowdown in external demand (the Chinese Manufacturing PMI fell to the lowest level in 11 months). The services index recorded a less steep decline, from 56.0 to 54.6, suggesting that domestic demand in the “core” countries is still holding up relatively well in the face of high commodity prices and fiscal tightening – note that the German services PMI actually saw a sharp increase.
The June drop in the composite PMI confirms that the slowdown in global trade, the earlier rise in commodity prices, and fiscal tightening in the region have started to bite. However, it is probably premature to start fretting about a double-dip recession. Indeed, the composite PMI remains in expansion territory (above 50) and is still consistent with quarterly gains in GDP of around 0.4%. The Eurozone recovery is clearly losing steam but retains forward momentum. With inflation remaining a concern for the ECB, it still looks set to hike interest rates next month.
The June drop in the composite PMI confirms that the slowdown in global trade, the earlier rise in commodity prices, and fiscal tightening in the region have started to bite. However, it is probably premature to start fretting about a double-dip recession. Indeed, the composite PMI remains in expansion territory (above 50) and is still consistent with quarterly gains in GDP of around 0.4%. The Eurozone recovery is clearly losing steam but retains forward momentum. With inflation remaining a concern for the ECB, it still looks set to hike interest rates next month.
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