In a survey conducted by S&P Global, it was revealed that Eurozone business activity slipped into contractionary territory last month. The survey, which serves as a good gauge of overall economic health, showed a broad-based downturn across the bloc’s dominant services industry and a deepening decline in factory output. The final Composite Purchasing Managers’ Index (PMI) compiled by HCOB fell to 49.9 in June, dropping below the growth threshold of 50 for the first time since December.
The services industry, a significant sector in the Eurozone, experienced a notable decline. The final PMI for services dropped to 52.0 in June from a reading of 55.1 in May, reflecting a slowdown in business activity. Additionally, the new business index for services fell to a five-month low of 51.0, indicating a weaker rise in new business compared to previous months.
Similarly, the manufacturing sector experienced a contraction at a faster rate than initially estimated, as revealed in a sister survey. This adds to the concerns about the overall economic health of the Eurozone.
Cyrus de la Rubia, the chief economist at Hamburg Commercial Bank, highlighted the loss of momentum in all major euro countries. He noted that the slowdown in business activity growth was accompanied by a weaker rise in new business, lower price increases, and a decline in business expectations. These factors further contribute to the challenges faced by the Eurozone economy.
However, there is a glimmer of positive news regarding pricing pressures. In June, inflationary pressures eased significantly, as seen in the decline of the composite output prices index to 53.8 from 56.4. This is the lowest level since March 2021 and could be welcomed by policymakers at the European Central Bank (ECB), who have been struggling to reach their 2% inflation target despite implementing aggressive monetary policies.
The ECB has recently raised borrowing costs to the highest level in 22 years, reflecting their concerns about stubbornly high inflation. Policymakers at the ECB have expressed their intention to continue tightening monetary policy, indicating that they may raise interest rates further in the future.
The latest survey results emphasize the challenges faced by the Eurozone economy, with the contraction in business activity and a decline in new business. The weakening of both the services and manufacturing sectors raises concerns about the overall economic outlook. The easing of pricing pressures, however, offers a ray of hope for policymakers at the ECB, who have been striving to achieve their inflation target. Moving forward, it will be crucial for policymakers to monitor the situation closely and implement appropriate measures to stimulate economic growth and restore confidence in the Eurozone economy.