June saw the growth rate of eurozone economic output hold steady at a moderate pace. After rising slightly from the earlier flash estimate of 52.8, the final Markit Eurozone PMI® Composite Output Index posted 53.1, unchanged from May. This left the average reading for the headline index for the second quarter a shade below that for the opening quarter (53.1 versus 53.2) and at its lowest level since the final quarter of 2014.
Manufacturing production registered its fastest growth in the year so far in June, and outperformed the service sector for the first time in three months. Service sector activity rose at the slowest pace in almost one-and-a-half years.
National PMI data indicated solid expansions in Germany, Italy, Spain and Ireland during June. Growth accelerated in the latter three and German output rose at a pace almost identical to May’s four month high. All of these nations scaled up activity in response to faster inflows of new business.
France remained well behind the rest of the pack in June, with French companies seeing output and new orders edge back into contraction territory. The
downturn in manufacturing production continued, while the trend in service sector activity slid slightly below the stagnation mark.
Jobs growth in the euro area accelerated to a five year record in June, with steeper increases registered at manufacturers and service providers alike. Part of the increase in employment reflected ongoing pressures on capacity, as backlogs of work rose at the quickest pace since last September.
Stronger job creation was recorded in Germany, Italy and Spain, and remained solid in Ireland. France saw cuts for the second successive month.
June data suggested that companies were still supporting sales efforts through price discounting. This was despite the recent pick up in cost inflation, with input prices rising at a pace close to May’s ten month high during the latest survey period.
Average output charges declined for the ninth consecutive month In June. Only Ireland reported a meaningful increase in selling prices, mainly a reflection of its comparatively higher rates of new order growth and cost inflation than elsewhere in the currency union.
Services business activity in the eurozone service sector rose at the slowest pace in almost one-and-a-half years in June. Growth slowed in Germany to its weakest since May 2015, while France saw a negligible contraction following back-to-back expansions in the prior two months.
The final Eurozone Services Business Activity Index posted 52.8 in June, down from 53.3 in May but above the earlier flash estimate of 52.4. The headline index has signalled expansion throughout the past 35 months. The average reading during the second quarter (53.1) was the weakest since the final quarter of 2014.
Output growth accelerated outside of the ‘big-two’ service economies to a four-month high. Italy returned to expansion, growth in Spain was the quickest since last November, while Ireland again recorded the fastest rate of expansion overall (albeit slower than in the prior month). Similar trends were also registered for new business.
Eurozone service sector employment rose for the twentieth consecutive month in June, with the rate of jobs growth the highest in the year so far. Part of the increase in staffing reflected rising levels of outstanding business. Backlogs of work accumulated at the steepest pace since January.
Jobs growth hit a near nine-year record in Spain and six-month highs in both Germany and Italy. Ireland also saw a substantial increase in headcounts. This was all in marked contrast to France, which recorded a slight cut in employment.
Business confidence continued to slide, however, with the overall degree of optimism at a seven-month low in June. France and Spain reported improved sentiment, whereas optimism eased in Germany, Italy and Ireland.
June saw the continuation of price discounting in the euro area service sector. Average output prices fell for the ninth straight month and at a mildly quicker pace than in May. Reductions in France and Italy offset increases elsewhere.
The rate of cost inflation facing businesses remained solid in June, having eased only slightly from May’s 41-month high. Input price increases were sharpest in Ireland and Italy.
Chris Williamson, Chief Economist at Markit said:
The eurozone economy failed to gain momentum in June, rounding off a disappointing second quarter. Faster manufacturing growth was countered by a slowdown in the service sector, leaving the overall pace of expansion of business activity unchanged since May.
The survey is signalling GDP growth of just 0.3%, similar to the sluggish trend recorded over the past year. The data suggest that the strong upturn seen in the official GDP data at the start of the year will have overstated the underlying health of the economy, and that growth will have slowed in the second quarter. (…)