News

Eurozone PMI: growth slows for second month

Growth across the Eurozone has slowed for second month running as the volume of new orders fell, according to new PMI data.

However, despite the fall the pace of growth remains sufficient to drive further rises in employment, the latest Markit Flash Eurozone Composite Output Index forecast.

Based on around 85 per cent of usual monthly survey replies, the Markit PMI fell further from April's post-recession high, dropping from 56.4 in May to 56.0 in June. Despite the easing in the rate of growth signalled by the fall in the index over the past two months, the series remained elevated by historical standards (its long-run average is 53.4), thereby indicating ongoing "robust expansion". The average Output Index reading for Q2 is the strongest for two years.

"Manufacturing output growth picked up slightly, remaining well below April's near 10-year peak but nonetheless signalling strong expansion and continuing to outperform services. The latter saw business activity growth slow during the month, but the pace remained close to May's 33-month high," according to Markit.

"Evidence that growth may slow further in coming months was provided by the New Orders Index, which fell for the second month in a row to register the weakest monthly increase in new business since February.

New orders growth slowed in both manufacturing and services, easing to six- and four-month lows respectively. Manufacturers reported that the rate of increase of new export orders, which had held up well in recent months on March's 10-year high, also slowed to a four-month low."

The study added that, in manufacturing, supplier delivery times showed a further widespread lengthening (close to April's near 10-year high).

This enabled many suppliers to push up prices for sought-after goods, causing producers' input costs to rise sharply again (although the rate of inflation slowed from May's near-record high).

"Prices charged by manufacturers also continued to rise, though the rate of increase remained well below pre-recession peaks. Charges for services fell again, reflecting weak demand, especially among consumers," Markit noted.

Other forward-looking indicators were found to have remained below recent peaks. Service providers showed the lowest degree of optimism for the year ahead since last July, while in manufacturing the new orders: finished goods inventory ratio rose slightly from May's 11-month low, but continued to suggest that output growth will weaken compared to the strong growth seen in the first half of the year.

The report found that, despite the signs that growth may have now peaked, the pace of expansion remained strong enough to generate a modest rise in employment for the second successive month. The Employment Index hit a two-year high, boosted by marginal increases in both manufacturing and services headcounts.

Chris Williamson, chief economist at Markit said: "The flash PMI suggests that GDP growth will have accelerated in the Eurozone in the second quarter, perhaps to a robust 0.6 per cent -0.7 per cent pace.

Growth is led by manufacturing and, in particular, exports. However, the downturns in growth of output, new orders and exports towards the end of the quarter suggest that economic growth will moderate as we move into the second half of the year. This may also mean that the earlier than expected return to growth of employment could lose momentum in coming months, highlighting the region's ongoing dependence on exports rather than domestic demand to sustain the recovery."