Eurozone economic growth accelerated at the start of the third quarter. The final Markit Eurozone PMI® Composite Output Index rose to a three-month high of 53.8 in July, up from 52.8 in June, but a shade lower than the earlier flash estimate of 54.0. The combined output of the euro area manufacturing and service sectors has now risen for 13 successive months. The latest rate of expansion was the second-strongest in over three years, bettered only during this sequence by April’s high.
Growth was led by the service economy in July, with business activity in this sector rising at the sharpest pace since May 2011. Manufacturing production also expanded, but the rate of increase was subdued compared to the peaks scaled earlier in the year.
Growth of new business slowed slightly in July, as a slight acceleration at manufacturers was offset by a weaker increase at service providers (although the rate of increase remained stronger in services). Germany and Spain led the rebound in July, with growth of business activity hitting three-month highs in both nations. The output expansions in Germany and Spain were driven by solid new order inflows. In Spain’s case, new business rose at the fastest pace since January 2007, leading to a modest accumulation of backlogs of work.
The recovery in Italy also remained solid, although growth was slower than in June. France remained the laggard, as a slight rebound in service sector activity was offset by a deepening downturn at manufacturers.
A lack of clarity regarding the economic situation and continued pressure to boost competitiveness meant job creation remained modest in July. Germany was the only nation covered to see payroll numbers rise at an accelerated pace. Spain also reported a solid, albeit slower, increase in staffing, a real positive given the sustained high levels of unemployment in the country. Employment was unchanged in Italy. France reported job losses for the ninth month running, but the rate of
reduction was marginal and the second-weakest during this sequence.
Average selling prices fell for the twenty-eighth consecutive month in July, as a modest increase in Germany was offset by further price discounting in France, Italy and Spain. Input cost inflation strengthened, reaching an eight-month high.
The recovery in eurozone service sector business activity was extended to 12 months in July. The Eurozone Services Business Activity Index posted 54.2, to signal the fastest rate of expansion since May 2011.
Services business activity rose in all of the big-four nations in July, led by Germany where the rate of expansion hit a three-year high. Spain also saw faster output growth, whereas the pace of increase in Italy eased slightly from June’s 43-month high. Although the expansion in France was only marginal, it was nonetheless an improvement on the contractions seen in the prior two months.
Underpinning the latest rise in business activity was a further increase in new orders. The rate of new business growth eased slightly from June’s three-year peak, but remained solid overall.
The ongoing recovery also had a positive effect on business confidence*, with optimism regarding the outlook for business activity remaining among the highest seen over the past three years. Confidence improved in Germany and Spain, but dipped slightly in France and Italy.
Rising levels of business activity, new business and the relatively solid degree of business confidence encouraged service providers to add to their payrolls in July. Employment increased for the fourth month running and at the fastest pace since August 2011 (though job creation remained only modest overall). Job creation accelerated in Germany (five-month high) and Spain (three-month peak). In contrast, France and Italy reported further cuts at the start of the third quarter, although the rates of decline were only marginal and less marked than the respective averages for the second quarter.
July saw service sector input cost inflation hold steady at June’s seven-month peak, with reports of both higher input prices and staff costs. Rates of increase ticked higher in Germany and Spain, and decelerated in France and Italy. Meanwhile, average output prices declined for the thirty-second successive month. Only Germany reported an increase in service charges.