Fra Handelsbanken:
Eurozone economy losing some steam
• Preliminary composite PMI fell from 56.8 to 55.7 in June – below consensus
• Despite the drop PMI still points at solid growth in Q2
• Price pressure still too weak for the ECB’s liking
PMI retreats but still at healthy level
The eurozone flash composite PMI fell from 56.8 to a 5-month low of 55.7 in June which was below both consensus (56.6) and our expectations (56.3). It is still early days, but the flat development last month and the decline in June could be evidence that the rising trend that we have seen in the PMI since September last year has been broken. However, despite the drop in June the composite PMI is still relatively healthy with the average for Q2 at the highest level for over 6 years consistent with still solid real GDP growth in Q2 even though growth might not have accelerated as we earlier expected. It is however also evident that the economy might have lost some growth momentum as of late.
Manufacturing still churning – but weaker service PMI
The eurozone still shows resilience from the global tendency of a slowdown in the manufacturing cycle as seen in the declines in Manufacturing PMI in both the US and China over the last two months. The eurozone manufacturing PMI rose from 57.0 to 57.3 in June (the highest level in 74 months) which was better than the consensus and our estimate of a drop and there are as such no signs that manufacturing in the eurozone has been negatively affected by neither the stronger EUR nor slower global demand. Thus, all the weakness was concentrated in the service PMI which fell from 56.3 to 54.7 which is consistent with our view that private consumption growth might be cooling down. On a country level both the German and French composite PMI’s declined.
Price pressures still too weak for the ECB’s liking
The decline in the PMI in June will probably not worry the ECB to much as it does not markedly alter the picture of solid growth. However, it is also still evident that high growth and improving employment has not yet translated into faster inflation. Thus, according to Markit, the average price charged for services and goods increased at the weakest pace in 5 months in June. This will in our view keep the ECB sidelined for a while yet and we still believe it is premature to expect any significant signals of a less accommodative monetary policy for some time yet – and entirely dependent on signs that prices and wages are beginning to increase.
Source: Macrobond
Link to the full report: http://research.handelsbanken.se/Templates/Pages/Utils/PublicationRedirect.aspx?id=80980
