Eurozone growth slows notably in June

Economic activity in the Eurozone deteriorated in June, reaching a five-month low, primarily due to a decline in industrial production, according to a closely watched survey. Official figures published earlier in the month confirmed that the Eurozone entered a technical recession at the beginning of the year. However, inflation remains above the European Central Bank’s two percent target, which adds pressure on the bank to continue raising interest rates despite the stagnant economy.

The Flash Eurozone Purchasing Managers’ Index (PMI) survey, conducted by HCOB and published by S&P Global, revealed a drop in June from 52.8 in May to 50.3. A figure above 50 indicates growth. S&P Global commented on the survey’s data, stating that it showcased “renewed weakness in the economy after the brief growth revival recorded in the spring.” The report highlighted the first decline in new business orders since January, slower employment growth, and growing pessimism regarding future production.

Chief economist at Hamburg Commercial Bank, Cyrus de la Rubia, noted that after Eurozone GDP contracted for two consecutive quarters in the first quarter, there is now an increased likelihood that the current quarter will also see negative growth, partly due to weak services activity in France. In June, France experienced the weakest performance in the Eurozone, with the “steepest” decline in activity in the manufacturing and services sectors since February 2021. Germany, the largest economy in the Eurozone, saw its growth come close to a standstill, in stark contrast to the expansions recorded in the previous three months.

S&P Global highlighted rising concerns among businesses in the Eurozone, particularly regarding demand growth and the impact of higher interest rates, which could lead to recessions both domestically and internationally. Despite a cooling of inflationary pressures, economists believe that the PMI data will not sway the European Central Bank from its path of raising rates. ING senior eurozone economist Bert Colijn stated that the sluggish economic outlook and improving inflation may seem dovish for the ECB, but it is unlikely to alter the bank’s stance on rate hikes.