By Jonathan Cable
LONDON, June 23 (Reuters) – Euro zone private sector activity shrank for a third straight month in June, though at a slower pace, as a modest recovery in tourism and leisure demand failed to fully offset a sustained fall in new business, a survey showed on Tuesday.
June’s reading of the S&P Global Flash Eurozone Composite PMI rose to 49.5 from 48.5 in May, a three-month high. A number below 50.0 signals a contraction.
“This still marks sluggish economic activity for the bloc but the easing of price pressures indicated by the survey is encouraging,” said Bert Colijn at ING.
“After already signalling contraction in business activity in April and May this surely rounds out a weak quarter for economic growth in the euro zone.”
A Reuters poll published at the start of June predicted a 0.1% expansion of the economy this quarter. [ECILT/EU]
New orders fell for the fourth consecutive month in June but at a slower pace. A marginal recovery in manufacturing new orders was not enough to offset a continued decline in services demand.
Most survey responses were collected before the U.S.-Iran ceasefire memorandum was signed on June 17.
The Flash Eurozone Services PMI edged up to 48.9 from 47.7 in May – a three-month high – but remained in contraction territory.
Germany’s private sector activity contracted at its fastest pace in 18 months in June as the services downturn deepened, but in France the contraction eased as declines in manufacturing and services output both slowed. The rest of the euro zone as a whole recorded modest output growth.
In Britain, outside the European Union, the services sector contracted this month at the fastest rate in nearly three-and-a-half years.
Employment fell slightly in the euro zone this month. Services staffing nudged slightly higher but manufacturing payrolls continued to shrink.
INPUT COSTS RISE MORE SLOWLY
On prices, input costs rose at their slowest pace since just before the outbreak of war in the Middle East in February, easing across both manufacturing and services. Output price inflation also slowed but by less than input costs.
“With inflationary pressures showing signs of easing, the ECB may now have more room to refocus on the weakening domestic growth picture,” said Pierre Roke at Validus Risk Management.
The European Central Bank hiked interest rates on June 11 as a war-related energy cost surge pushed overall inflation over 3%, well in excess of the ECB’s 2% target.
The Flash Eurozone Manufacturing PMI dipped to 51.3 in June from 51.6 – a four-month low. Factory output continued to expand, supported by inventory building as clients sought to get ahead of potential future price rises and supply disruptions.
Business confidence improved for a second consecutive month after hitting a 31-month low in April but sentiment remained relatively subdued overall.
(Reporting by Jonathan Cable; Editing by Joe Bavier and Susan Fenton)
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