Growth in Eurozone private sector activity eased for the second straight month in June, reflecting a slowdown in new order and output growth. The downturns in the growth of output, new orders and exports towards the end of the second quarter suggest that economic growth will moderate in the second half of the year.
Flash Eurozone composite output index, that combines manufacturing and services purchasing managers' indexes, fell to a three-month low of 56 in June from 56.4 in May, survey data released by the Markit Economics showed Monday. However, that was better than its long-term average of 53.4. A reading above 50 suggests expansion in the sector, while below 50 indicates contraction.
Separate data showed that the services purchasing managers' index fell to a three-month low of 55.5 in June from 56.2 in May. On Thursday, Markit said manufacturing PMI fell to 55.6 in June from 55.8 in May. The service sector expanded for the tenth month in June, while manufacturing sector grew for a ninth consecutive month.
BNP Paribas' economist Clemente De Lucia said the details of the survey signaled that activity might continue to slow down next month. "Services sector activity is highly dependent on the dynamics of domestic demand. Unfortunately domestic demand will probably remain lacklustre over the coming quarters."
Markit said disparities prevailed among the national economies in June, with growth of business activity in the core Eurozone nations of France and Germany stabilizing at levels well above those seen at the periphery. Italy and Spain saw growth of economic activity slowing to only modest rates. More encouragingly, growth in Ireland accelerated to a 32-month high.
"The Eurozone PMI data indicate that growth in the region is likely to have peaked and the risks have increased of a further easing in coming months," Markit Chief Economist Chris Williamson said. The economist noted that export growth, the main engine of the recovery, has weakened as the boost to global trade from stock rebuilding waned. At the same time, domestic demand remained in the doldrums as economic stimulus measures are replaced by austerity.
The clearest indication of slower growth is provided by the inflows of new orders. Growth of new orders lost further impetus in June, suggesting that the recovery rate of business activity may have passed its peak. New business rose for the tenth month running, but the rate of expansion was the weakest since February. Rates of expansion in total new orders eased further from the peaks achieved earlier in 2010 in both the manufacturing and service sectors, and were the weakest for six and four months respectively.
Markit said the slowdown in new business growth mainly reflected the ongoing weakness of domestic demand. However, growth of manufacturing new export orders also slowed, dropping further from the ten-year high seen in March to a four-month low. Germany, France and Italy all reported growth of total new business in June. However, many of the new orders indexes covering either manufacturing or services were lower than in May. Of particular concern were the outright declines in new business reported by service providers in Germany and Spain, highlighting weak domestic demand.
Other forward-looking indicators also suggested that growth of business activity might have already peaked. Business optimism amongst service providers regarding activity in one year's time fell to its lowest level in the year-to-date. Some firms reported concerns that the sovereign debt crisis and austerity measures would hit future growth. Although the manufacturing new orders to finished goods inventory ratio edged higher from May's 11-month low, it remained below the levels seen throughout much of the recovery.
Encouragingly, staffing levels rose for the second successive month in June, with marginal job increases signaled in both the manufacturing and service sectors. Employment rose in Germany and France, but fell again in Italy and Spain. Companies linked increased staffing levels to growth of business activity and rising backlogs of work. Outstanding business rose for the seventh month in a row in June, although the rate of growth was the weakest since February.
On the prices front, average input costs in the Eurozone continued to rise at a solid pace, above the survey's long-run average, in June, although the rate of increase slowed due to a marked easing in manufacturing. Meanwhile, lower service sector charges offset an increase in manufacturers' factory gate prices to lead to a further decrease in average output prices.
While the June Eurozone services purchasing managers' survey points to still decent expansion in the key sector, there are warning signs in the survey that services activity may have peaked, HIS Global Insight's Chief European Economist Howard Archer said. "In conjunction with a further softening in the Eurozone manufacturing purchasing managers' survey for June, this reinforces concern that the Eurozone debt crisis and an associated intensified tightening of fiscal policy in a number of countries is having a dampening impact on economic activity across the region," he said.
On Sunday, European Central Bank President Jean-Claude Trichet ruled out that Eurozone could slip back into recession. The economy of sixteen nations expanded 0.2% sequentially in the first quarter, maintaining gradual recovery after exiting recession in the third quarter of 2009.
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December 19, 2025 15:10 ET U.S. inflation data and interest rate decisions by major central banks were the highlights of this busy week for economics news flow. Employment data and survey results on the housing markets also gained attention in the U.S. In Europe, the European Central Bank and Bank of England announced their policy decisions and macroeconomic projections.