Eurozone business recovery slows sharply in June, Reuters PMI shows

By Jonathan Cable

LONDON (Reuters) – Business growth in the eurozone slowed sharply this month as demand fell for the first time since February, a survey found, with the bloc’s services industry showing some signs of weakening as a decline in manufacturing took a turn for the worse. .

That was despite the European Central Bank telegraphing a broad cut in interest rates earlier this month and expectations in a Reuters poll for two more cuts this year.

HCOB’s preliminary composite purchasing managers’ index, compiled by S&P Global, eased to 50.8 this month from 52.2 in May. The drop confounded expectations in a Reuters poll of a rise to 52.5 and pushed it close to the 50 mark that separates growth from contraction.

“The sharp fall in the eurozone composite PMI in June suggests that a solid recovery in the eurozone economy is not a done deal,” said Franziska Palmas at Capital Economics.

A general index of new business fell to a four-month low of 49.2 from 51.6.

Growth in business activity in Germany, Europe’s largest economy, over the past two months slowed in June as manufacturing weakness dragged into a buoyant services sector, its PMI showed.

CHOOSING IS NERVOUS

France’s services industry shrank more than expected this month, dragged down by weak demand and financial market worries, as the euro zone’s second-largest economy heads into early parliamentary elections.

Marine Le Pen’s far-right National Rally is seen leading the race, three polls showed on Thursday, ahead of President Emmanuel Macron’s left-wing Popular Front and centrists.

As far-right and far-left parties gain momentum, investors are beginning to ponder the risk of a budget crisis at the heart of the eurozone.

In Britain, outside the European Union and heading to the polls next month, businesses expanded at the slowest pace since the economy was in recession last year, as some companies decided to hold off on major decisions until after the 4th election. July.

Opinion polls show Keir Starmer’s Labor Party is set to return to power for the first time since 2010, while Prime Minister Rishi Sunak’s Conservatives are heading for a historic defeat after he unexpectedly called a snap election last month.

Three polls this week predicted a record defeat for Sunak’s Conservatives and predicted Labor would easily win a large majority.

Separate data on Friday showed British retail sales rebounded last month after heavy rain kept shoppers away in April.

ACTION OF THE ECB

A PMI for the dominant currency union services industry fell to 52.6 from 53.2. The Reuters poll had forecast a rise to 53.5.

But inflationary pressures eased, strengthening the case for further ECB interest rate cuts this year. The services producer price index fell to 53.7 from 54.2, its lowest reading in just over three years.

“With price pressures easing according to the survey, this confirms the view of a moderate economic environment in line with expectations for very cautious easing from the ECB,” said Bert Colijn at ING.

Manufacturing activity, in decline for nearly two years, overturned the last signs of a recovery. The factory PMI fell to a six-month low of 45.6 from 47.3. Expectations in the Reuters poll were for a rise to 47.9.

An index measuring manufacturing fell sharply to 46.0 from 49.3.

This decline prompted factories to reduce the number of employees for a thirteenth month.