Eurozone PMI: Recession Eases

Econintersect:  The Eurozone Composite PMI moved higher in June to 48.7, up from 47.7 in May, indicating the economy is still contracting but at a slower rate than a month earlier.  Two countries had PMI readings above 50, Ireland (53.2) and Germany (50.4).

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The highlights from Markit:

• Final Eurozone Composite Output Index: 48.7 (Flash 48.9, May 47.7)

• Final Eurozone Services Business Activity Index: 48.3. (Flash 48.6, May 47.2)

• Ireland and Germany expand further; downturns ease in France, Italy and Spain

Other factors reported:

• Job losses continued for the eighteenth consecutive month.

• Manufacturing PMI fell at the slowest rate in sixteen months.

• Service PMI fell at the slowest rate since January.

Here is the text of the Markit press release:

At 48.7 in June, up from 47.7 in May, the final Markit Eurozone PMI® Composite Output Index indicated a further easing in the rate of contraction in economic output to a 15-month low. The reading was below its earlier flash estimate (48.9), however, and signals that overall activity has now fallen in each of the past 17 months.

June PMI data signalled that the downturns in the manufacturing and service sectors both eased further. Manufacturing output fell only slightly, and at the weakest pace during the 16-month sequence of decline. Meanwhile, service sector business activity contracted at the slowest rate since January.

Output growth hit a five-month high in Ireland, while Germany managed to eke out another slight expansion. Rates of contraction eased in France, Italy and Spain.

Eurozone companies saw employment and new orders fall at weaker rates during June. Job losses have nonetheless been recorded throughout the past one-and-a-half years, with further declines at both manufacturers and services providers in each of the big-four nations. A brighter spot was Ireland, which reported solid job creation in both sectors.

Spare capacity remained available in the eurozone, despite lower employment, leading to a further reduction in outstanding business. However, with the rate of depletion in backlogs of work slowing to a 15-month low in June, downward pressure on payroll numbers could ease further in the coming months.

Average input prices were broadly unchanged over the month in June, as a solid increase in service sector costs was offset by a further decline in manufacturers’ purchase prices. Cost increases were reported in France, Italy and Ireland, whereas input prices fell slightly in Germany and Spain.

Strong competition and subdued market conditions continued to constrain firms’ pricing power. Average output prices fell for the fifteenth month running, but at the weakest pace since March. All of the nations covered by the survey reported reductions.

Services:

The downturn in the eurozone service sector extended to a seventeenth successive month in June, as companies experienced a further reduction in new business inflows.

Signs of the recession in the service sector easing were also evident during the latest survey month. Although the Services Business Activity Index came in below its earlier flash estimate, at 48.3, it nonetheless signalled the weakest rate of contraction since January.

Moreover, the rate of decline in new business was also at a five-month low, while business confidence regarding conditions in one year’s time improved slightly from May’s year-to-date low. Companies’ optimism reflected hopes of economic recovery.

The brighter spots in the eurozone service sector were Ireland and Germany. Output growth in Ireland was solid – hitting a five-month high – while German service providers reported a slight gain following contractions in April and May. The pace of contraction eased to a ten-month low in France, while Spain registered the weakest drop in the current two-year sequence of falling activity. Italy was the only nation to report a faster rate of contraction.

Job losses were recorded in the eurozone service sector for the eighteenth straight month in June, with the rate of reduction identical to May. Ireland was the only nation to report higher employment, in contrast to the further cuts implemented in the big-four eurozone nations.

Service sector costs continued to rise in June, although the rate of inflation was the same as April and May’s near three-year lows. All of the nations covered by the survey reported higher costs.  Meanwhile, strong competition and ongoing subdued market conditions led to a further cut in average service charges. Output prices fell for the nineteenth month running, and at a rate in line with the average for that sequence.

Comment:
Chris Williamson, Chief Economist at Markit said:

“The sub-50 PMI reading for June indicates that the euro area recession has extended into a record seventh consecutive quarter. The survey is broadly consistent with GDP falling by 0.2% in the second quarter, similar to the decline seen in the first three months of the year.

“However, there is good reason to believe that the region is stabilizing and on course to return to growth during the second half of the year.

“Most encouraging is the news that the Spanish economy is now contracting at the slowest rate for two years while Italy, although still plagued by a weak services economy, is seeing business activity fall at the slowest pace since September 2011. France’s downturn has likewise moderated to the weakest since last August.

“The concern is that, with Germany barely growing, it remains difficult to identify any real growth drivers. This suggests that the pace of economic expansion for the region as a whole is likely to remain subdued until business confidence improves further and unemployment starts falling from its current, alarming record high of 12.2%.”

John Lounsbury

Source:

• Markit press release (03 July 2014)