Business survey data showed the pace of Eurozone economic growth slowing slightly in July, though the rate of expansion remained one of the strongest seen over the past four years. At 53.7, the Markit Eurozone PMI (purchasing managers' index) fell from June’s four-year high of 54.2 but remained slightly above the average seen over the first half of the year.
The latest reading was the sixth-highest since mid-2011. Growth moderated in manufacturing and services, sliding from the recent highs seen in June, but remaining robust in both cases. By country, growth slowed in Germany, albeit merely to a two-month low, while a three-month low was seen in France.
Elsewhere in the region, the rate of expansion accelerated, pushing the pace of growth further ahead of both France and Germany yet failing to match the peaks seen earlier in the year. The survey data were collected between July 13- 23, after the July 5 Greek referendum and commencing on the day that Greece and its creditors subsequently struck an agreement on the country’s third bailout, though there was little conclusive evidence from survey respondents as to the extent to which the events directly affected business activity either positively or negatively.
However, business expectations about the year ahead in the dominant services economy dropped to the lowest seen so far this year, fuelled by weakened confidence in Germany and France, in a sign that the crisis appears to have dented business prospects. Growth of incoming new business also slowed, easing to its weakest since February as an acceleration of inflows of new business in the service sector was offset by weaker growth of new orders in manufacturing. The rate of job creation likewise eased, dropping by a small margin to the lowest since February. Only modest employment growth was recorded in both manufacturing and services.
While remaining subdued, the sustained upturn in employment in July further extended the region’s best spell of job creation seen since 2011. Backlogs of work — a key gauge of capacity constraints — registered the second-largest rise since the first half of 2011, suggesting companies are likely to continue hiring in August, notably in the service sector. On the price front, the survey brought some positive news on the prospects for a moderate upturn in inflationary pressures in coming months.
The survey’s Output Prices Index registered 49.9, its highest since March 2012 and signalling a stabilisation of average selling prices for goods and services. Selling prices for goods rose for a second consecutive month while the drop in service sector charges was the smallest since March 2012. Average input prices meanwhile rose for a sixth successive month, pushed up by increased costs associated with the weakened euro and, in some instances, rising wages. However, the rate of increase dipped to a three-month low.
Chris Williamson, chief economist at Markit said: “Eurozone economic growth lost only slight momentum in July amid the rollercoaster events of the Greek debt crisis during the month. The rate of expansion remained reassuringly robust to suggest that it was by-and-large ‘business as usual’ for the region as a whole.
“The PMI suggests the Eurozone continues to enjoy its strongest performance in terms of both economic growth and job creation seen over the past four years. The survey indicates that the economy grew 0.4% in the second quarter and sustained this steady pace at the start of the third quarter.
“Although business confidence in the service sector hit the lowest so far this year, recent positive developments in relation to Greece suggest the pace of growth could pick up again in coming months. The region should therefore enjoy growth of at least 1.5% this year providing there is no re-escalation of ‘Grexit’ worries, which is of course by no means assured.
“Deflation worries should also be allayed further by average prices charged for goods and services steadying in July, the survey gauge rising tantalisingly close to the neutral level to buoy hopes that August will see prices rising for the first time in three-and-a-half years.”
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