Private sector activity in the euro zone fell sharply in July, after stagnating the previous month, penalized by industry difficulties and a drop in demand reflecting a gloomy economic situation, according to the PMI Flash index published Monday by S&P Global. The index, calculated on the basis of business surveys, fell to 48.9 in July, after 49.9 in June (revised figure), the lowest in eight months. A number above 50 indicates growth in activity, while a number below indicates contraction.
The economy continues to be weighed down by the poor health of the industrial sector, where the decline in activity is accelerating: the PMI index for manufacturing stood at 42.7 (compared to 43.4 in June), the lowest in more than three years. For its part, the services sector experienced a sharp slowdown in activity (to 51.1 compared to 52 in June), the lowest in six months.
A reduction in the volumes of commercial activity is expected
The concern relates to consumption and investment by households and businesses, held back by the tightening of monetary policy by the European Central Bank (ECB), even as fears about energy prices and supply difficulties have partly dissipated.
The worsening economic situation and sharply weakening demand led companies to limit hiring in July, and while employment continued to grow slightly in July, it is at its weakest pace since early 2021. This weakened demand is helping to further dampen inflationary pressures: “This has prompted manufacturers to make the biggest price cuts since the peak of the global financial crisis in 2009,” S&P Global notes.
The deterioration in the economic situation is especially pronounced in France, where private sector activity posted its biggest decline in two and a half years (to 46.6), worsening in both the manufacturing and services sectors.
The euro zone fell into a mild recession last winter and economic growth looks weak for 2023, around 1%, according to the latest official forecasts. Despite its slowdown, inflation in Europe – which fell to 5.5% annually in June – remains well above the 2% target set by the ECB, which should encourage the institution to continue raising interest rates, at the risk of further slowing down the economy.
Source: BFM TV
