Eurozone Economic Indicators on the Decline

Eurozone: Preliminary summary data on the Purchasing Managers’ Index (PMI) in the manufacturing and services sector for July turned out to be lower than expected. The preliminary estimate of the PMI is 42.7, which is worse than June’s 43.4.

Analysts of the international rating agency Standard & Poor’s (S&P) sound the alarm: in the eurozone, preliminary consolidated PMI fell from 49.9 points in June to 48.9 points in the first weeks of July, thus recording the lowest reading in eight months. According to estimates released on Monday, July 24, manufacturing PMI in the eurozone in the second month of summer 2023 fell to 42.7 from 43.4 recorded last month. S&P analysts state that “this was the lowest value in the last 38 months.”

According to the analysis of the data presented by S&P Global, the overall production in the eurozone since the beginning of July “declined at the fastest rate in eight months, which indicates a rather weak start to the third quarter.” In addition to the decline in manufacturing PMI, the composite index of services showed 48.9 compared to the previous 49.9 and the expectations of 49.7 points. Service PMI was equal to 51.1, while the previous value was 52.0, with forecasts of 51.5.

Therefore, worsening forecasts of immediate indicators, anticipating the possible negative trends to follow in economic activity in the euro area, have raised fears of new layoffs, which, in turn, may push companies to abandon their production plans and postpone hiring new employees for an indefinite period.

On the other hand, inflationary pressure is declining: in July, prices recorded the slowest growth in almost two and a half years. According to S&P, “as a result of a sharp drop in demand, factory prices in manufacturing industry fell at the fastest pace since the 2009 financial crisis, while inflation rates in services and advanced services fell to their lowest level in 21 months.”

“Manufacturing continues to be the Achilles’ heel of the eurozone. In July, the manufacturing industry again cut output at an accelerated pace, while activity in the services sector kept growing, albeit at a much weaker pace than at the beginning of the year,” said Cyrus de la Rubia, chief economist at the Hamburg Commercial Bank, to Business24.