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Eurozone PMI shows continuous deterioration in economic conditions

Autor: Financial Market
2 min

Survey data have increasingly deteriorated in the second quarter, and the PMI for July continues this trend. In June, the composite PMI was 49.9, broadly indicating stagnation, but in July the PMI fell to 48.9, indicating contraction.

According to the survey, demand in the eurozone is falling for both goods and services, with new orders in the services sector falling for the first time in seven months, while the decline in new orders in manufacturing continued to strengthen.

The picture is particularly bleak in France and Germany, where manufacturing PMIs signal contraction, slightly offset by the rest of the eurozone.

More precise figures are not yet available, but this could be due to the fact that the economies more dependent on tourism benefited from a somewhat stronger summer period.

Nevertheless, the positive tourism effect does not appear to be strong enough to offset the weakening of the economy in other countries.

The eurozone economy is in a stagnation-like environment, and the recent two quarters of minimal negative GDP growth should not be taken as a broad recession given the strength of the labour market.

However, the July PMI suggests that the risk of recession has increased. With a further weakening of output expected, the outlook for the coming months is sluggish at best.

The inflation picture emerging from the survey is very similar to that of recent months. Price pressures are easing, but more so among manufacturers of goods than among service providers.

Rising wages ensure that price pressures remain high for services, leading to a slower downward trend. Falling input costs contribute to the fact that inflation expectations for goods are currently falling much faster. This confirms our assessment of a much lower inflation rate toward the end of the year, but maintains hawkish concerns about the impact of wages on inflation.

Article based on a story from ING Bank as a copyright owner