Euro Area: Business activity nears stagnation in June

Euro Area PMI June 2023

Euro Area: Business activity nears stagnation in June

The flash Eurozone Composite Purchasing Managers’ Index (PMI) fell to 50.3 in June from 52.8 in May. Consequently, the index remained slightly above the 50 no-change threshold, signaling a softer improvement in business conditions compared to the prior month.

June’s decrease was led by a considerably softer expansion in the services sector and a sharper downturn in manufacturing activity. In the services sector, output growth slowed markedly, as did new orders. Meanwhile, the manufacturing sector experienced sharper declines in output and new orders. Moreover, headcounts were cut in the manufacturing sector for the first time since January 2021, while the pace of job creation decelerated in the services sector to its lowest since February. Lastly, business confidence weakened due to growing concerns over the impact of higher interest rates in the Eurozone and abroad on domestic and external demand, respectively.

On the price front, in the manufacturing sector input costs fell at the fastest pace since July 2009, while in the services sector input inflation decelerated to the lowest level since May 2021, although it remained above historical average due to intense wage pressures. Consequently, output inflation measures across both sectors cooled to its lowest level in 27 months.

Commenting on the release, Bert Colijn, senior economist at ING, stated:

“Overall, it looks like the eurozone economy has entered a sluggish period where economic growth is hovering around 0%. After the weak May PMI reading and soft production and sales data for April, today’s PMI adds to evidence that the rebound from two small negative growth quarters is set to disappoint. In fact, another quarter of negative growth is becoming more likely.”

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