Euro Area: Business activity weakens in July

Euro Area PMI July 2023

Euro Area: Business activity weakens in July

The flash Eurozone Composite Purchasing Managers’ Index (PMI) fell to 48.9 in July from 49.9 in June. Consequently, the index fell further below the 50 no-change threshold, signaling a sharper deterioration in business conditions compared to the prior month.

July’s decrease was led by a softer expansion in the services sector and a sharper downturn in manufacturing activity. In the services sector, new orders contracted for the first time in seven months. Meanwhile, the manufacturing sector experienced sharper declines in output and new orders. Moreover, headcounts were cut in the manufacturing sector at an accelerating pace, while the pace of job creation decelerated in the services sector slowed. Lastly, business confidence weakened in both sectors.

On the price front, in the manufacturing sector input costs fell at a sharper pace, while in the services sector input inflation decelerated but remained above historical average due to intense wage pressures. Consequently, output prices fell in the manufacturing sector and increased at a softer yet still-elevated clip in the services sector.

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

“We have previously argued that the eurozone economy has been in a stagnation-type 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. The July PMI suggests that recession risk has increased though. With expectations of output weakening further, the outlook for the coming months is sluggish at best.”

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