Eurozone private sector momentum slows further in July

LONDON (ICIS)–Eurozone private sector momentum almost slowed to a standstill in July, dropping to a five-month low as new orders fell and business confidence ebbed.

The composite eurozone purchasing managers’ index (PMI) slipped to 50.1 in the month compared with 50.9 in June, according to S&P Global, with manufacturing sinking further into contraction and service sector growth slowing.

A PMI score of above 50.0 signifies growth.

Output in Germany sank for the first time in four months in July, while activity in France ebbed for the third consecutive month. Business confidence for the bloc as a whole dropped to its lowest level in six months which arrested the spell of new hiring.

The rate of input cost inflation accelerated but low demand meant that companies pushed through the price increases at a softer pace, contributing to the slowest pace of change for inflation since October.

The decline in manufacturing activity was the largest monthly fall in 2024, with services slowing but still managing to keep the region in overall growth. The manufacturing sector PMI fell to 45.6 in July from 45.8 in June, while the service sector index fell from 52.8 to 51.9 month on month.

New export orders fell faster than total new business as players struggled to secure international sales, representing the 29th successive month of decline.

“It’s unsettling how steadily companies in the manufacturing sector are slashing jobs month by month. The pace has barely changed over the last ten months,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, which helps to produce the data.

Despite the tepid economic data, sticky input price inflation makes the case for successive rate cuts more difficult, he added.

“If only growth was considered, you find a strong argument for a rate cut in September by the ECB (European Central Bank). However, prices data did not provide hoped for relief,” de la Rubia said.

“Our conclusion is that while a September rate cut will most probably be exercised, it will be much trickier to follow this path in the months thereafter, unless the downturn morphs into a deep recession,” he added.

The unexpected pace of decline for the eurozone economy may result in economic forecast cuts down the line, according to Rory Fennessy, senior economist at Oxford Economics.

“The eurozone’s flash July PMIs corroborate the message sent by other leading indicators that the recovery is faltering. If leading indicators continue to underwhelm, this may result in a downgrade to our GDP growth forecasts for H2 2024,” he said.

Momentum for the UK private sector continued to strengthen despite dynamics seen in the eurozone, with the composite PMI hitting 52.7 in July compared to 52.3 in June, a two-month high.

UK manufacturing sector growth outpaced that of services, reaching a 29-month high of 54.4 compared to 52.4 in the latter industry.

Average prices charged by companies eased but remain steep due to elevated costs, according to S&P Global.

Input costs for the service sector eased on the back of softening wage pressures, but the manufacturing sector saw the sharpest rise in costs in a year-and-a-half on the back of Red Sea logistics disruption.

The slower pace of price increases raises the odds of a central bank rate cut before autumn, but the pace of winding down current high interest levels is likely to be slow, according to S&P Global Market Intelligence chief economist Chris Williamson.

“Prices have meanwhile risen at their lowest rate for three-and-a-half years, further raising the prospect of a summer rate cut,” he said.

“However, policymakers will likely take a cautious approach to loosening policy amid signs of inflationary pressures pivoting away from services towards manufacturing, where Red Sea shipping delays and higher freight prices are adding to costs again,” he added.

Thumbnail photo: Rotterdam port (Source: Hollandse Hoogte/Shutterstock)