After stagnating in June, the eurozone economy started the third quarter with the fastest contraction in business activity since
November last year, latest HCOB PMI® survey data compiled by S&P Global showed. July’s contraction was brought about by a
deepening downturn in the manufacturing sector and a near-stalling of services output. There was also notable weakness with
respect to demand as total new orders fell again and to the quickest extent in nine months. Export performance was a
considerable drag as demand from foreign clients fell at the steepest rate since the start of the COVID-19 pandemic over three
years ago.
Falling new business led to a greater reliance on backlogs of work to help sustain activity levels where possible. Backlogs fell
for the fourth month in a row and at a faster pace. Employment growth meanwhile slowed and business confidence weakened.
A further cooling of price pressures was also recorded, although this continued to be heavily driven by the manufacturing sector
as services companies registered still-elevated rises in both their costs and prices charged.
The seasonally adjusted HCOB Eurozone Composite PMI Output Index, a weighted average of the HCOB Manufacturing
PMI Output Index and the HCOB Services PMI Business Activity Index, posted 48.6 in July, down from 49.9 in June and
crucially, below the 50.0 no-change mark that separates growth from contraction. Overall, the latest survey data indicated the
fastest decrease in business activity across the euro area since November last year.
Once again, the manufacturing sector represented a considerable drag on the eurozone’s economic performance in July, with
production volumes declining at a rapid and accelerated rate. Weakness among goods producers was accompanied by a
further slowdown in the services sector as activity levels came close to stalling.
Overall output volumes were constricted by deteriorating demand for euro area goods and services at the start of the third
quarter. New business volumes fell for the second month in a row, with the decline gathering pace amid a steep reduction in
new export1 orders. Overall, the decrease in total new work intakes was the strongest since October last year.
July’s contraction in order books continued to free up capacity at eurozone firms, leading backlogs of work to decline once
again. The drop in outstanding business volumes was the fourth in as many months and the quickest seen since the first half of
2020. Deteriorating demand and sustained progress on the completion of pending workloads weighed on euro area job
creation.
While staffing levels rose further in July, the expansion was only modest and slowed to the weakest in almost two-anda-half years. As was the case in June, employment growth was confined to the service sector.
Business confidence retreated further at the start of the third quarter, falling to its weakest level seen in the year-to-date and
marking a fifth successive month in which growth expectations have eased. Both manufacturers and services providers were
less optimistic towards the 12-month outlook.
