Eurozone: More weakness moving into Q3 – ABN AMRO

Aline Schuiling, senior economist at ABN AMRO, points out that the Eurozone’s modest gains in the composite PMI that were registered in May and June were completely erased, with the index declining from 52.2 in June to 51.5 in July.

Key Quotes

“This decline was the combined result of a drop in the manufacturing activity PMI (from 48.5 to 47.0 – the lowest level since April 2013) and a more moderate decline in the services sector activity index (from 53.6 to 53.3). At its current level, the PMI is consistent with eurozone GDP growing by just 0.0-0.1% qoq, which would be in line with our base scenario for the eurozone.”

“Indeed, the forward looking parts of the PMI report also suggest that the economy will be close to stagnation, with the new exports orders component of the manufacturing PMI falling by almost three points in July to its lowest level since June 2012.”

“On top of that the new business component of the services PMI declined by a full point, suggesting that activity in the services sector is being affected by the ongoing malaise in industry.”

“Other details of the PMI report suggest that the weakness in the eurozone economy, which began in exports and the manufacturing sector around the start of 2018 has spread to the labour market.”

“Overall, the PMI reports support the case for an ECB stimulus package.”