Euro area business activity growth slowed slightly in June, according to the Markit Eurozone Flash PMI®, which edged down to its lowest level since January of last year. The PMI fell from 53.1 in May to 52.8, rounding off the worst calendar quarter since the fourth quarter of 2014 amid signs of political and economic uncertainty dampening business activity.
Moderate growth was recorded in both the manufacturing and service sectors, though an acceleration in the rate of goods production, to the best seen so far this year, was offset by a weakened pace of expansion in services, the slowest for 18 months.
Growth of new orders likewise accelerated in manufacturing, buoyed by the best export performance since December, but slowed in services. Overall growth of new business across both sectors consequently inched only slightly higher, remaining one of the weakest seen over the past year-and-a-half.
Backlogs of work nevertheless rose to the greatest extent seen over the past nine months, prompting firms to take on additional staff at the fastest rate seen so far this year in order to expand capacity to meet demand. Stronger rates of job creation were seen in both manufacturing and services.
Sales in both manufacturing and services were once again partly driven by discounting, however. Prices charged for goods and services fell on average in June, sustaining the trend of downward price pressures recorded by the survey almost continuously since late-2011.
Selling prices were cut despite an increase in firms’ costs, which rose at the fastest rate for 11 months. Higher costs were most prevalent in the services sector, linked in many cases to the recent improvement in oil prices feeding through to fuel prices, but also to upward wage pressures. Manufacturing input costs continued to fall, though the decline was the smallest since last August.
By country, ongoing (though slightly slower) growth in German business activity was countered by a marginal fall in activity in France for the first time in four months. The rest of the region enjoyed only slightly slower growth than that recorded in Germany, with the pace of expansion picking up from May’s 17-month low.
Looking ahead, business expectations in the service sector slipped to an 11-month low in June, with companies often citing worries about political change and rising economic uncertainty, albeit with few explicit references to a potential ‘Brexit’. Reduced optimism in France and, on average, outside the ‘big two’, contrasted with a brighter outlook among German firms.