Growth in business activity in Europe slowed in June, pointing to a difficult end to the second quarter, in keeping with preliminary data on Friday.
The preliminary composite index of buying managers in the euro area fell to 50.3 in June from 52.8 in the previous month. This is lower than 52.5 expected by analysts. A reading above 50 indicates expansion of activity, and below 50 indicates contraction.
“Eurozone business output growth got here near halting in June, in keeping with the newest HCOB flash PMI data from S&P Global, indicating the economy is weakening again after a transient recovery in spring growth,” S&P Global said in a press release. .
“While energy and provide chain concerns have eased since late last yr, June saw an extra escalation of concerns about demand growth and in particular the impact of upper rates of interest and the resulting potential for recession each domestically and internationally. “
Talking to CNBC Street Signs Europe, Chris Williamson, chief business economist at S&P Global Market Intelligence, described the numbers as “disturbing.”
“Higher rates of interest, rising cost of living, every little thing is beginning to take its toll,” he said.
The European Central Bank has been consistently raising rates of interest for 12 months in an effort to bring down inflation. Higher rates, nevertheless, can result in higher costs for businesses across the bloc and sometimes change into a brake on production.
Fresh PMI data were below expectations and pointed to economic slowdown.
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Broken down by country, data from Germany also showed a slowdown in Europe’s largest economy. Germany’s flash PMIs fell to 50.8 in June from 53.9 in May. It was below market expectations.
“These figures are in line with our view that GDP (gross domestic product) growth in Germany will remain low in the second and third quarters after the economy enters a technical recession,” said Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics in a note to customers.
Germany entered a technical recession in the primary quarter of the yr after falling 0.3% in three months. Within the last quarter of 2022, the German economy shrank by 0.5%.
Similarly in France, the composite PMI fell to 47.3 from 51.2 in May, well below the expected 51. This was mainly on account of the weakness of the services sector.
Euro zone bond yields continued to fall after the info, with the yield of 2Y German Bund falling to three.17% at first of the trade and the yield of the 10Y benchmark falling to 2.36%. An economic slowdown often has a negative impact on bond yields.