Eurozone business activity growth slows sharply in June

BRUSSELS: The growth of business activity in the eurozone slowed down in June after the manufacturing sector posted its biggest decline in six months, a key survey said Friday.

The HCOB Flash Eurozone purchasing managers’ index (PMI) published by S&P Global recorded a figure of 50.8, down from 52.2 in May and its lowest level in three months.

Any reading above 50 indicates growth, while a figure below 50 shows contraction.

Manufacturing activity slid to 46 in June from 49.3 a month earlier.

The data however “suggested that GDP will continue to expand in the second quarter”, S&P Global said. But the lower PMI in June showed growth “may be slower than initially expected”, said Bert Colijn, senior eurozone economist at ING Bank.

Economists agreed it was unlikely that the European Central Bank would cut interest rates again in July, although there could be further cuts later in the year.

“The HCOB PMI do not provide ammunition for another rate cut in July by the ECB,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank (HCOB). The situation in France, the EU’s second biggest economy, is however weighing on the single currency area’s economic performance, according to the economist.

“It is evident that France’s poor economic performance has significantly contributed to the deteriorating economic conditions in the Eurozone,” de la Rubia said.

The survey showed both services and manufacturing output falling.

De la Rubia said it could be tied to the far right’s drubbing of the party of President Emmanuel Macron in EU elections this month and his call for a snap vote on June 30.

“This unexpected turn of events has likely stirred up a lot of uncertainty about future economic policies, causing many companies to hit the brakes on new investments and orders,” he added.

Capital Economics’ senior Europe economist Franziska Palmas however warned not to “overemphasise” the point since “the French PMI started falling in May before the political turmoil started”.

In contrast, Germany, the EU’s biggest economy, recorded a third successive monthly increase in business activity, the survey showed.