Business growth across the euro zone slowed further last month, according to a survey in which forward looking indicators suggested the region could slip into decline this quarter as the cost of living crisis keeps consumers wary.
S&P Global’s final composite Purchasing Managers’ Index (PMI), seen as a good guide to economic health, fell to a 16-month low of 52 in June from May’s 54.8.
This was just ahead of a preliminary 51.9 estimate. Anything above 50 indicates growth.
“The sharp deterioration in the rate of growth of euro zone business activity raises the risk of the region slipping into economic decline in the third quarter,” said Chris Williamson, chief business economist at S&P Global.
“The manufacturing sector is already in decline, for the first time in two years, and the service sector has suffered a marked loss of growth momentum amid the cost of living crisis,” he said.
Household spending on non-essential goods and services has come under particular pressure due to soaring prices,” he added.
A PMI covering the bloc’s dominant services industry sank to 53 from 56.1, albeit just above the flash 52.8 estimate.
A factory PMI released last week showed manufacturing production fell in June for the first time since the initial wave of the coronavirus pandemic two years ago.
Meanwhile, although inflationary pressures moderated somewhat last month, the services output prices index remained near a record high at 63.2, down from May’s 64.6.
Inflation in the bloc was 8.6% last month, official data showed on Friday, more than four times the European Central Bank’s 2% target.
The ECB has lagged many of its central bank peers in unwinding ultra-loose monetary policy but has said it will start raising rates this month. A recent Reuters poll predicted it would hike by 25 basis points in July and another 50 bps in September.
Implying there will be no quick turnaround for the economy this month, the composite new business index fell to 50 from 53.3 – its lowest reading in well over a year.
“The June PMI data therefore suggest that risks have increasingly tilted towards the economy slipping into a downturn at the same time that inflationary pressures moderate but remain elevated,” Williamson said.