According to preliminary data on Friday, business growth in Europe slowed in June, pointing to a difficult end to the second quarter.
The euro-zone flash composite purchasing managers’ index fell to 50.3 in June from 52.8 in the previous month. This was below the 52.5 that analysts were expecting. A reading above 50 indicates an increase in activity, while a reading below 50 indicates a decrease.
“Eurozone corporate output growth nearly stalled in June, according to the latest HCOB Flash PMI survey data from S&P Global, pointing to renewed weakness in the economy after the spring’s brief pickup in growth,” S&P Global said in a statement press release .
“Although energy and supply chain concerns have eased since late last year, June saw a further escalation of concerns over demand growth and particularly the impact of higher interest rates and the resulting possibility of recessions both in domestic markets and beyond.” “
Speaking to CNBC’s Street Signs Europe, Chris Williamson, chief economist at S&P Global Market Intelligence, called the numbers “worrying”.
“Higher interest rates, the rise in the cost of living – all of these are starting to take their toll,” he said.
The European Central Bank has steadily increased interest rates over the past 12 months in an attempt to bring down inflation. However, higher rates can result in higher costs for businesses across the Union and therefore often have a negative impact on production.
Fresh PMI data fell short of expectations and pointed to an economic slowdown.
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At country level, data from Germany earlier in the day also showed a slowdown in Europe’s largest economy. German flash composite PMIs fell to 50.8 in June from 53.9 in May. This was below market expectations.
“These data are consistent with our view that Germany’s GDP (gross domestic product) growth will remain subdued in the second and third quarters after the economy experienced a technical recession,” said Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics. in a note to customers.
Germany slipped into a technical recession in the first quarter of the year after contracting 0.3% over the three-month period. In the final quarter of 2022, the German economy shrank by 0.5%.
Similarly in France, where the headline PMI fell to 47.3 from 51.2 in May, well below the 51 expected. This was mainly due to weakness in the service sector.
Euro-zone bond yields continued their decline after the data, with the 2-year German Bund yield falling to 3.17% in early trade and the benchmark 10-year yield slipping to 2.36%. An economic slowdown tends to have a negative impact on bond yields.
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