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The recovery in euro zone private sector business activity has unexpectedly lost momentum, with the results of the French elections weighing on business and industrial confidence

The Composite Purchasing Managers’ Purchasing Managers’ Index (PMI) in the euro area, calculated by S&P Global and considered a good indicator of the health of the economy, fell in June to 50.8 points from 52.2 points the previous month. Although this is the fourth consecutive month that the index has crossed the 50-point threshold. This separates a growth from a contraction in the economy, analysts had expected the index to advance to 52.5 points.

Euro area economic activity growth slows - S&P Global

Europe’s economy is in the early stages of recovery after last year’s weak recession. But while growth beat estimates in the first quarter of this year, recent data suggest a slowdown. What’s more, President Emmanuel Macron’s shock announcement of early elections has raised the prospect of a radical change in the governance of the euro area’s second-largest economy.

“These unexpected developments increase uncertainties about the future of economic policies. Many companies pulling back on investments and new orders. In any case, it is clear that the poor performance of the French economy has contributed significantly to the deterioration of economic conditions in the euro area,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.

He stressed that “the services sector continues to keep the euro area afloat. Even if activity has not increased as much as last month, the overall expansion is solid”.

Euro area economic activity growth slows – S&P Global

Analysts expect the economy to get a boost. The European Central Bank this month cut borrowing costs for the first time in five years. It acknowledged progress in the fight against high inflation. It also signaled that the war is not yet over as inflation is forecast to remain too high until 2025.

The PMI index covering the euro area’s dominant services sector fell to 52.6 points in June from 53.2 points the previous month, below analysts’ forecast of 53.5 points.

The manufacturing index fell to 45.6 points this month, its lowest level in six months. The employment index fell to 47.5 points in June.

Photo Source: freepik.com

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