Market Analysis

Euro Zone Business Recovery Slows Significantly in June, PMI Indicates

Amos Simanungkalit · 21 Jun 20249K Views

Euro zone business growth decelerated significantly this month as demand declined for the first time since February, according to a survey. The services sector showed signs of weakening, while manufacturing worsened further.

Despite the European Central Bank's anticipated interest rate cut earlier this month and expectations for more cuts this year, the preliminary composite Purchasing Managers' Index (PMI) by S&P Global fell to 50.8 from May's 52.2. This was below expectations of a rise to 52.5 in a Reuters poll. However, the index remained above the 50 mark that separates growth from contraction, marking the fourth consecutive month.

Chief economist Cyrus de la Rubia from Hamburg Commercial Bank noted, "Is the manufacturing sector's brief recovery coming to an end? The services sector continues to support the euro zone."

The overall new business index dropped to a four-month low of 49.2 from 51.6, indicating a slowdown in new orders. The PMI for the services industry, the largest sector in the currency union, fell to 52.6 from 53.2, below expectations of an increase to 53.5 in the Reuters poll.

Despite these developments, inflationary pressures eased, potentially justifying further ECB interest rate cuts this year. The services output prices index declined to 53.7 from 54.2, marking its lowest level in over three years.

De la Rubia added, "The ECB's decision to cut interest rates in June may find support in the easing price pressures seen in the euro zone's service sector. However, the latest PMI data do not necessarily advocate for another rate cut in July."

Meanwhile, manufacturing activity, which has been declining for nearly two years, showed a setback. The factory PMI fell to a six-month low of 45.6 from 47.3, below expectations of a rise to 47.9 in the Reuters poll. The index measuring output dropped sharply to 46.0 from 49.3, reflecting weakening production levels.

As a result, manufacturing firms continued to reduce their workforce for the thirteenth consecutive month, with the employment index falling to 47.5 from 47.9.