The Eurozone private sector contracted for the first time since early 2021 as the manufacturing activity shrank on weak output and new orders, and the service sector growth almost stalled, flash survey results from S&P Global showed on Friday.
The flash composite output index fell to 49.4 in July from 52.0 in June. The reading was forecast to fall to 51.0.
At 50.6, the services Purchasing Managers’ Index came in at a 15-month low, down from 53.0 in June. The expected score was 52.0.
At 49.6, the manufacturing PMI plunged to a 25-month low from 52.1 a month ago. The reading was seen at 51.0.
The eurozone economy looks set to contract in the third quarter as business activity slipped into decline in July and forward-looking indicators hint at worse to come in the months ahead, Chris Williamson, chief business economist at S&P Global Market Intelligence said.
With the ECB raising interest rates at a time when the demand environment is one that would normally see policy being loosened, higher borrowing costs will inevitably add to recession risks, Williamson added.
The survey showed that factory output decreased sharply, while service sector output continued to rise in July. New orders for goods and services meanwhile fell solidly, dropping for the first time since February 2021.
Backlogs of work fell across both manufacturing and services, declining for the first time in almost one-and-a-half years.
Overall jobs growth moderated for a second consecutive month to a 15-month low in July as companies were more cautious about hiring.
Although price pressures remained elevated at levels not seen prior to the pandemic, both output and input price inflation moderated amid easing of supply constrains and weakened demand.
Finally, business expectations for the year ahead fell to the lowest since May 2020, reflecting concerns over energy supply, the rising cost of living and tightening financial conditions.
The steepest decline was recorded in Germany, where the composite PMI sank to its lowest since June 2020. Although output continued to rise in France, the pace of growth slowed sharply in July.
Germany’s private sector activity deteriorated more-than-expected in July amid weaker domestic and export demand. The flash composite output index dropped to a 25-month low of 48.0 in July from 51.3 in June. The index was forecast to fall to 50.1.
Both the services and manufacturing sectors registered declines in July. The services PMI slid to a seven-month low of 49.2 in July from 52.4 in the prior month and also remained below the expected 51.2.
Likewise, the manufacturing PMI also decreased to a 25-month low of 49.2 in July from 52.0 in June. The expected score was 50.6.
France’s private sector growth slowed in July, reflecting a contraction in the manufacturing sector due to weaker demand. The flash composite output index dropped to 50.6 from 52.5 in June, while it was forecast to fall moderately to 51.8.
At the sector level, there were notable differences once again in manufacturing and services performances. Manufacturing output contracted in July, while services activity posted a softer growth.
The manufacturing PMI dipped to a 20-month low of 49.6 in July from 51.4 in June. This was also below economists’ forecast of 50.8. At the same time, the services PMI came in at 52.1, down from 53.9 a month ago and the expected score of 52.7.
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