Eurozone: Composite PMI performs better than expected in the face of Brexit
July 22, 2016
Recent data suggest that business activity in the Euro area lost momentum in July. The preliminary Eurozone Composite Purchasing Managers’ Index (PMI), elaborated by Markit, fell from 53.1 in June to 52.9 in July. The result overshot market analysts’ expectations of a starker fall to a 52.5 reading amid Brexit concerns and marked a one-and-a-half year low.
July’s downturn mainly reflected softer activity in the services sector, while, conditions in the manufacturing sector remained broadly stable. Output growth slowed in both sectors, while employment increased at the quickest pace in over five years. Rising energy prices along with a weak euro led to an increase in input costs across the bloc. Meanwhile, business expectations among service providers fell to an over one year low amid rising political and economic uncertainty. The result is largely due to the downside risks to the Eurozone outlook in the aftermath of Brexit.
Regarding the two largest Eurozone economies, economic conditions improved in Germany and stabilized in France. Elsewhere in the region, economic momentum weakened. Commenting on the result, Market analysts stated that, “policymakers will be reassured by the resilience of the PMI in the immediate aftermath of the Brexit vote, but the fragility of the recovery leaves plenty of room for speculation about further stimulus later in the year.”