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- Composite PMI 50.1 vs. 51.1 expected
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Eurozone economic growth stalled in July, as growth in services activity slowed and manufacturing conditions continued to slacken. The first reading was four months lower and the second reading was a seven-month low. This points to weaker economic sentiment in the eurozone at the start of the second half of the year.
On the inflation front, input prices rose sharply to a three-month high, while output prices also rose but at a slightly weaker pace. At the same time, cost prices continued to rise with selling prices also rising, particularly in the services sector. The Office for Consumer Statistics notes that:
“Is this the summer lull? It looks a bit like it as the eurozone economy barely moved in July, according to the HCOB Eurozone PMI. But apart from the fact that we are talking about seasonally adjusted figures, looking at the two sectors under observation, the situation deteriorated significantly in the manufacturing sector and countered the moderate growth in the services sector. According to our current GDP forecasts, growth in the third quarter is still expected.
“It is worrying to see companies in the manufacturing sector steadily cutting jobs month after month. The pace has been almost unchanged over the past 10 months. Since employment has broadly fallen at a slower rate than output, this suggests two things: companies are a bit cautious about cutting staff as there is still some hope for better times. Second, labor productivity is declining, which bodes ill for growth prospects. As a result, the eventual recovery is likely to be followed by a significant delay in employment growth.”
“While Germany appears to be struggling to grow, the French economy is drawing strength from the Olympics. Anecdotal evidence suggests that French service providers increased their business activity in July due to preparations for the Games. By contrast, demand in German manufacturing appears to have dragged down private sector output.
“If we consider growth alone, there is a strong case for a September ECB rate cut. However, the price data did not provide the relief hoped for. Input prices in the services sector rose at a faster rate and selling prices rose at a similar pace to the previous survey period. To make matters worse, input prices in manufacturing, which had been falling for more than a year between March 2023 and May 2024, have now risen for two months in a row. Output prices have fallen only fractionally, which could make it difficult for headline inflation to make the necessary progress towards the 2 percent target. Our conclusion is that while a September rate cut is likely, it will be very difficult to follow this path in the following months, unless the downturn turns into a deep recession.”