Business activity growth in Europe experienced a slowdown in June, indicating a challenging end to the second quarter, according to preliminary data released on Friday.
The flash composite Purchasing Managers’ Index (PMI) for the euro zone dropped to 50.3 in June from 52.8 in the previous month, falling below analysts’ expected level of 52.5. A reading above 50 signifies expansion, while a reading below 50 indicates contraction.
“Eurozone business output growth came close to stalling in June, as per the latest HCOB flash PMI survey data produced by S&P Global, suggesting renewed weakness in the economy after a brief revival in the spring,” S&P Global mentioned in a press release.
“Despite the easing of energy and supply chain concerns since last year, June witnessed an escalated anxiety over demand growth, particularly due to higher interest rates and the potential impact on both domestic and international markets,” the statement added.
Chris Williamson, chief business economist at S&P Global Market Intelligence, expressed concern about the numbers in an interview with CNBC’s Street Signs Europe.
“Higher interest rates, along with rising costs of living, are beginning to have an impact,” he stated.
The European Central Bank has consistently raised interest rates over the past year to combat inflation. However, higher rates often lead to increased costs for companies in the region, which can slow down output.
Fresh PMI data indicated an economic slowdown and fell short of expectations.
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German data released earlier in the day also showed a slowdown in Europe’s largest economy. The German flash composite PMIs decreased to 50.8 in June from 53.9 in May, falling below market expectations.
“These data align with our prediction that GDP growth in Germany will remain subdued in the second and third quarters following the technical recession in the first quarter,” noted Claus Vistesen, chief euro zone economist at Pantheon Macroeconomics, in a client note.
The German economy contracted by 0.3% in the first quarter and by 0.5% in the final quarter of 2022.
France experienced a similar situation, with the composite PMI dropping to 47.3 in June from 51.2 in May, significantly below the expected level of 51. Weakness in the services sector was the primary contributing factor.
Following the release of the data, euro zone bond yields continued to decline. The yield on the 2-year German bund fell to 3.17% in early trading, while the yield on the 10-year benchmark dropped to 2.36%. A slowdown in the economy typically leads to lower bond yields.
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