Germany, the largest economy in Europe, experienced significant weakness, while France and Italy, the second- and third-largest economies in the euro zone, also saw notable deteriorations since June.
In July, HCOB’s final euro zone manufacturing Purchasing Managers’ Index (PMI), compiled by S&P Global, dropped to 42.7 from June’s 43.4, which is its lowest since May 2020 and matches the preliminary reading. A PMI reading below 50 indicates a contraction in activity.
The output index, which is an indicator of economic health and is included in a composite PMI due on Thursday, decreased to 42.7 from 44.2, reaching a low not seen in over three years.
“It appears that the manufacturing recession is here to stay in the euro zone,” stated Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.
“The steeper declines in output, new orders, and purchase volumes at the beginning of the third quarter support our view that the economy as a whole will face challenges in the second half of the year.”
Demand experienced a sharp decline, despite the fact that falling input costs allowed factories to reduce their charges. Increased competition among suppliers led to input costs falling at the fastest pace since mid-2009. The output prices index also dropped to a near 14-year low of 45.0 from 47.0.
“The European Central Bank will be pleased to see that deflation of output prices has accelerated, reaching the most rapid pace in almost 14 years. However, concerns regarding services inflation remain a priority,” added de la Rubia.
Last week, the ECB raised interest rates for the ninth consecutive time. However, they also raised the possibility of a pause in September due to tentative signs of easing inflation pressures and mounting recession concerns.
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