The eurozone economy saw further solid growth of output in June, rounding off the best quarter of economic expansion in the region for three years. The outlook for the second half of the year was mixed, however, as signs that the upturn in output was losing momentum were offset by stronger inflows of incoming new business.
At 52.8 in June, unchanged from the flash estimate, the final Markit Eurozone PMI® Composite Output Index signalled expansion for the twelfth consecutive month. Although the rate of increase eased for the second month running to its lowest in the year so far, PMI data for the second quarter as a whole are consistent with a mild acceleration in GDP growth to around 0.4%. New business levels, meanwhile, rose at the fastest pace in over three years.
Manufacturing production and services business activity rose at similar rates during June, with both sectors seeing output growth slow over the month.
The upturn in economic activity in Italy accelerated – reaching a three-year high – underpinned by strengthening order inflows. Although output growth in Germany ticked lower for the second month in a row, the pace of expansion was still in line with the average for the current 14-month sequence of increases. Growth of output and new orders also slowed slightly in Spain. France remained the major negative spot on the eurozone growth picture, recording the sharpest contraction of output for four months in June. Business activity and new orders contracted in both the manufacturing and service sectors.
Eurozone employment rose moderately for the third month running in June, with job creation registered in Germany, Italy, Spain and Ireland. Further cuts were reported in France, continuing a near-constant sequence of reduction seen since early-2012.
Input cost inflation hit a seven-month high in June, with increases in input prices reported by manufacturers and service providers. There were reports of higher oil prices and staff costs. Meanwhile, the rate of decline in output charges eased, as factory gate price inflation ticked higher and service sector charges fell at a slower pace.
Business activity in the eurozone service sector expanded for the eleventh successive month in June. The Eurozone Services Business Activity Index dipped to a three-month low of 52.8, from 53.2 in May, but nonetheless provided a solid end to the best quarter for three years.
The outlook for the sector also remained relatively bright, with the growth rate for new orders accelerating to its highest since May 2011 and business confidence hitting a three-month peak. A third successive month of modest job creation also suggested that services companies remained optimistic regarding the coming months.
Business activity and new orders rose in Germany, Italy, Spain and Ireland. Ireland again recorded the steepest expansions, with the growth rates in output and new orders at or close to seven-year peaks. This underpinned a stronger gain in payroll numbers. Germany was in second position in the output growth table, despite seeing rates of expansion in activity and new business ease slightly from May’s highs. German service providers also reported solid job creation. Spain saw a modest increase in employment, despite slower rates of increase for both demand and output.
The performance of the Italian service sector continued to brighten in June, with business activity and new orders rising at the sharpest rates since November 2010 and July 2007 respectively. This failed to result in job creation, however, with staffing levels broadly unchanged over the month.
France remained the main drag on the generally positive performance of the eurozone service sector, being the only one of the big-four nations to record a contraction in either business activity or new orders. Employment fell for the eighth successive month.
Input price pressures continued to increase at eurozone service providers in June, as costs rose at the fastest pace since November 2013. This mainly reflected higher oil prices and staff costs. Strong competition prevented companies from passing the increase on to clients, however, as selling prices fell for the thirty-first month running.
