The purchasing managers index compiled by S&P Global has dropped to a five-month low
Business activity growth in the euro area slowed in June amid lingering fears of the impact of higher interest rates and concerns over demand growth, data compiled by S&P Global showed.
According to the calculations, the Eurozone’s flash composite Purchasing Managers’ Index (PMI) plunged to 50.3 in June from 52.8 in the previous month. A PMI reading over 50 indicates growth or expansion of business activity, while a reading below this threshold suggests contraction. The indicator is now at its lowest in five months.
“Eurozone business output growth came close to stalling in June, pointing to renewed weakness in the economy after the brief growth revival recorded in the spring,” S&P Global said in a press-release.
“Although energy and supply chain worries have eased since late last year, June has seen a further escalation of concerns over demand growth, and in particular the impact of higher interest rates, and the resulting possibilities of recessions both in domestic markets and further afield.”
The decline was led by France, which has been suffering from worker strikes, and Germany, which recently saw its factory orders slump. Analysts noted that manufacturing was the “principal area of weakness” for the overall business activity in June, along with service-sector expansion which has “slowed sharply.”
Chris Williamson, chief business economist at S&P Global Market Intelligence, told CNBC he finds the numbers “worrying,” noting that higher interest rates and the rise in the cost of living are “all beginning to take their toll” on the region’s economic momentum.
The European Central Bank has repeatedly hiked interest rates for the past year in an effort to rein in persistently high inflation. According to S&P analysts, further tightening of monetary policy may plunge the euro area into a recession, as higher rates could lead to higher borrowing costs for companies and cause a slump in output.
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June 25, 2023 at 12:42PM