The eurozone’s business recovery sharply slowed by the end of the second quarter of 2024 as new orders declined for the first time in four months due to slower business activity and employment. In light of that decline, business confidence slipped to the lowest since February despite rates of input cost and output price inflation easing to a six- and eight-month low, respectively.
The slowdown in business recovery across the eurozone was due mainly to a slower service sector expansion and a greater decline in manufacturing production, which declined at the fastest rate so far this year in June.
“The services sector continues to keep the eurozone afloat. Even though activity didn’t pick up as much as last month and fell short of what most analysts were expecting, the overall expansion was solid,” stated Dr. Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.
The seasonally adjusted S&P Global HCOB Flash Eurozone Composite Purchasing Managers’ Index (PMI) Output Index declined to 50.8 in June from 52.2 in May. Despite recording a decline, the June reading signaled a fourth consecutive monthly increase in business activity above the 50.0 threshold, suggesting that the eurozone’s economy will continue to expand in the second quarter.
Germany maintains growth
Country-wise, the eurozone’s largest economy, Germany, posted a third successive monthly rise in business activity. However, the rate of expansion was only marginal amid a decline in new orders. On the other hand, France saw a decline in output at the fastest pace since February, posting a decrease in output for the second month running. Meanwhile, the rest of the eurozone recorded a solid rise in activity, despite the rate of growth easing to a four-month low.
Employment rises while price increases cool
In line with slower business activity, the rate of job creation also eased in the eurozone during June. However, employment saw an increase for the 6th month in a row. However, it was only a slight pace that was the weakest since March.
Amid the decline in inflationary pressures, the rate of input cost inflation eased for the second month straight in June and was the slowest in the year to date. In services, the pace of input cost inflation eased to a 38-month low. Meanwhile, the pace of output price inflation also eased in June and reached an eight-month low.
Selling prices increased at slower rates in France and the rest of the eurozone, but at a faster pace in Germany.
“The ECB, which cut interest rates in June, may feel vindicated by price data which signaled easing pressure in the Eurozone’s service sector. However, the HCOB PMI does not provide ammunition for another rate cut in July by the ECB,” added de la Rubia.
Future outlook
After hitting a 27-month high in May, business confidence across the eurozone declined in June due to the fall in new orders. Optimism reached its lowest in four months but was still broadly in line with the series average. In addition, sentiment declined in both the manufacturing and service sectors, with services optimism dropping to the lowest since January.
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