The rate of eurozone economic expansion ticked higher at the start of the third quarter. This was signalled by the final Markit Eurozone PMI® Composite Output Index rising to a six-month high of 53.2 in July, above the earlier flash estimate of 52.9. The headline index has now signalled growth for 37 successive months.
The rate of expansion in manufacturing production steadied at June’s six-month high. Growth of service sector output improved slightly but remained slower than that seen at manufacturers.
Although the latest data signalled a solid and steady pace of expansion, national data suggested that the upturn was uneven by nation. Growth was primarily driven by an accelerated rate of output expansion in Germany, the fastest during the year-to-date. Rates of growth moderated in Italy and Spain, whereas France continued to hover around the stagnation mark.
July saw the trend in euro area job creation strengthen, with employment rising at the fastest pace in almost five-and-a-half years. The steepest increase was registered in Spain, with the pace of expansion holding steady at June’s 11-month high. Jobs growth improved to a near five-year peak in Germany and a near nine-year record in Italy. Brighter news was also provided by France, where employment edged up following losses in each of the prior two months.
Average input prices in the euro area rose at the quickest pace since July 2015. Service providers saw a steeper increase than manufacturers, mainly due to rising staff costs. Manufacturing purchase prices increased for the first time in a year, reflecting higher commodity prices and the weaker euro exchange rate.
July also saw average output charges decrease at the slowest pace during the current ten-month period of decline. Negligible reductions were seen at manufacturers and service providers alike. Germany and Spain both reported increased output charges, whereas price reductions were seen in France and Italy.
The eurozone service sector expanded again during July, taking the current sequence of increase to three years. The final Markit Eurozone PMI® Services Business Activity Index posted 52.9, up slightly from June’s 17-month low of 52.8 and the earlier flash estimate of 52.7. However, the rate of expansion signalled was still among the weakest registered over the past year-and-a-half.
All of the ‘big-four’ national service economies reported growth of business activity, incoming new orders and employment during July. However, optimism regarding future performance fell to a 19-month low, with business confidence easing across Germany, France, Italy and Spain.
Output growth improved in Germany and Italy, with Germany seeing the strongest increase overall. Spain was in second position, despite seeing growth ease to a five-month low. France also edged back into expansion territory, following a mild contraction in the prior month.
Brighter news was also provided on the employment front, with the pace of job creation in the euro area service sector rising to a near eight-and-a-half year high.
Faster rates of increase were seen in Germany (seven-month high) and Italy (107-month record) and employment rose in France following losses in June. Spain registered solid job creation, with a rate of increase close to the prior month’s nine year peak.
July saw a slight decrease in average prices charged by eurozone services companies, extending the current sequence of decline to ten months. Germany and Spain reported increases in selling prices, in contrast to further reductions in France and Italy.
Meanwhile, average input prices in the eurozone service sector increased again. The rate of inflation was little-changed from that recorded in the preceding survey period.
Chris Williamson, Chief Economist at Markit:
However, the survey is still indicating only a modest 0.3% quarterly rate of economic growth at the start of the third quarter. Such a meagre pace of expansion will inevitably fuel speculation about what the ECB could and should do to boost growth, and when.
The upturn is being led by surging growth in Germany, where a 0.5% pace of expansion is being signalled. However, France continued to stagnate, acting as a significant drag on the region. Growth has also slowed in Spain and Italy, in both cases indicating that political uncertainty is hurting businesses. While the pace of expansion in Spain has merely slowed to around 0.6% in July, Italy is growing at a sluggish 0.2% pace.