Eurozone factory sickness infecting services growth
LONDON: Eurozone business growth hit a wall in July as demand crumbled, according to a survey which showed a deepening downturn in manufacturing is increasingly affecting the bloc’s dominant services industry. Last month the European Central Bank all but promised to ease policy further as the bloc’s growth outlook deteriorates and yesterday’s survey will do little to sway market expectations for loosening.
IHS Markit’s Euro Zone Composite Final Purchasing Managers’ Index (PMI), considered a good measure of overall economic health, dropped to 51.5 in July from June’s 52.2, moving closer to the 50 mark separating growth from contraction. “They weren’t a massive surprise, the composite PMI was left unrevised. There was no worsening in growth but it remains pretty weak,” said Jack Allen-Reynolds at Capital Economics.
Those headwinds hurt manufacturers and figures last week showed factory activity contracted in July at its fastest rate in six years. That factory malaise is now having a greater effect on services and a PMI for the industry fell to 53.2 from 53.6 the month before and below the flash reading of 53.3.
Breakdown
Italy was alone amongst the bloc’s four biggest economies where the PMI rose, offering some hope of a timid recovery there but activity in Germany’s private sector hit its weakest level in more than six years, suggesting Europe’s largest economy started the third quarter on a weak footing. “The economic weakness in the currency union is still concentrated in Germany and Italy. While Italy’s PMI edged up in July it was still very weak and pointing to only a small increase in GDP,” Allen-Reynolds said. Growth also slipped in France and Spain. However in Britain, gearing up to split from the European Union, growth unexpectedly accelerated to a nine-month high in July, possibly soothing some worries about whether the country is slipping into recession before Brexit. Forwardlooking indicators suggested there won’t be a turnaround anytime soon and demand for services in the eurozone waned, hit by falling new export business-which includes trade between member countries in the bloc. The subindex dropped to 49.2 from 49.4.