The euro-area private-sector economy is facing a more severe business downturn than anticipated, as the flash Composite PMI (Purchasing Managers’ Index) for the region dropped to the lowest reading since November 2022, with industry being the hardest hit.
In July, the composite PMI for the euro zone hit an eight-month low of 48.9 (v 49.9 prior), below the 50 mark separating growth from contraction, reflecting declining demand in the services industry and a significant fall in factory output (42.7 in July v 43.4 prior). Indebted consumers, grappling with rising borrowing costs and prices, have reduced spending, causing the services new business index to drop below breakeven for the first time in seven months.
The decline in manufacturing is evident across the region, with France and Germany particularly affected, signaling contraction. While other tourism-dependent economies may be profiting from a slightly stronger summer period, it seems insufficient to offset the weakening economic conditions elsewhere in the euro zone.
The falling PMIs came as no surprise given that monetary developments in the Eurozone in May already pointed a gloomy outlook for the coming months. On the positive side, the report highlighted signs of disinflation. Latest PMI numbers show that while prices charged for goods and services are still rising, the increases are happening at the slowest rate in 29 months. As a results, Europe’s government bonds surged and the euro slid, three days before the central bank is expected to deliver another interest-rate hike.
The deepening business downturn in the euro zone, highlighted by the declining PMI, raises concerns about the region’s economic stability and the challenges faced by policymakers in achieving their inflation target. Reflecting on these latest indicators, it becomes evident that addressing economic downturns requires a comprehensive and coordinated approach to foster sustainable growth and resilience in the global financial landscape.