LONDON (Reuters) – The slowdown in business activity in the euro zone was sharper than expected in July, as demand in the services sector retreated while factory output fell at its fastest pace since the outbreak of the COVID-19 outbreak, preliminary results from S&P Global’s PMI surveys released on Monday showed.
The S&P/HCOB composite index, which combines the manufacturing and services sectors, stood at 48.9 in July, an eight-month low, compared to 49.9 in June and 49.7 expected by the Reuters consensus.
The bar of 50 separates growth and contraction of activity.
“The manufacturing sector continues to be the Achilles’ heel of the euro zone. Producers again cut output at an accelerated pace in July, while activity in the services sector continues to grow, but at a much slower pace than at the start of the year,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.
“The eurozone economy is likely to continue to contract in the coming months as the services sector continues to falter,” he added.
The services sector index fell from 52.0 to 51.1, its lowest level since January. The Reuters consensus gave it at 51.5.
Consumers, in debt, are suffering from rising borrowing costs and have cut spending.
The services new orders index fell below 50 for the first time in seven months. It came out at 48.5 after 51.0 in June.
The manufacturing sector index fell to 42.7 from 43.4 the previous month and a consensus of 43.5.
The index measuring production, which feeds the composite PMI, stood at 42.9, the lowest in more than three years, against 44.2 previously.
This decline occurs despite a sharp drop in input costs against a backdrop of falling demand for materials and an improvement in supply. The price sub-index fell to 35.5, a 14-year low, from 39.5 previously.
The easing of price pressures should be welcomed by European Central Bank (ECB) officials meeting on Thursday.
A 25 basis point hike in ECB interest rates is expected after its meeting, according to a Reuters survey, of which a slight majority of economists also expect a further rise in the cost of credit in the euro zone in September.
(Report Jonathan Cable; Claude Chendjou, edited by Kate Entringer)
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