Euro area output and new orders expand at faster rates in June  

Key findings:
  • Final Eurozone Composite Output Index: 54.9 (Flash: 54.8, May Final: 54.1)
  • Final Eurozone Services Business Activity Index: 55.2 (Flash: 55.0, May Final: 53.8)

Data collected June 12-26

The eurozone economy regained some traction at the end of the second quarter. Rates of expansion in output and new business accelerated, although failed to fully recover the momentum lost earlier in the year. The main impetus was provided by the services economy, which saw growth accelerate to a four-month high, offsetting a further waning in the pace of increase in manufacturing production.

The final IHS Markit Eurozone PMI® Composite Output Index posted 54.9 in June, up from 54.1 in May and the earlier flash estimate of 54.8. However, the average reading over the second quarter as a whole (54.7) was the weakest registered since the final quarter of 2016.

National PMI data saw Ireland top the output growth league table, with economic activity rising at the fastest pace in five months. Rates of increase also picked up in Germany, France and Italy. Third-placed Spain was the only nation to see its rate of expansion decelerate (to a 17-month low).

The trends in euro area new business followed a similar pattern to output. New orders increased at a faster pace, with accelerations seen in Germany, France, Italy and Ireland. The mild improvement in demand growth partly reflected a recovery after an unusually high number of holidays depressed activity and new order inflows in May. The latest increase in new business was sufficiently robust to test capacity, with backlogs of work rising for the thirty-seventh successive month.

IHS Markit Eurozone Composite PMI

Countries ranked by output growth*: June

Ireland                                58.1                    5-month high

France                     55.0 (flash: 55.6)         2-month high

Spain                                  54.8                    17-month low

Germany                 54.8 (flash: 54.2)         3-month high

Italy                                     53.9                    4-month high

*Composite Output PMI against GDP comparisons for Germany, France, Italy and Spain are included below.

Recent surveys have nonetheless seen increased company reports of conditions slowing compared to earlier in the year. In some cases this has been due to concerns about rising trade worries, political uncertainty and the impact of ongoing capacity constraints on the pace of economic expansion in the coming months. This was reflected in the trend in business optimism, which dipped to a 19-month low.

June saw further job creation, with the rate of expansion remaining solid and picking up slightly compared to the prior survey month. Employment rose in all of the nations covered, with growth improving in Germany, France and Ireland.

Price pressures increased at the end of the second quarter. Input costs rose to the greatest extent in five months. This fed through to higher selling prices, which increased at the quickest pace since February.

Chris Williamson, Chief Business Economist at IHS Markit, said:

“Eurozone growth regained momentum in June, rounding off a respectable second quarter performance, for which the survey data point to GDP rising by just over 0.5%. June also saw new orders and employment growth perk up, suggesting rising demand continues to motivate companies to expand capacity.

“Firms’ costs and average selling prices for goods and services are meanwhile rising at rates close to seven-year highs, which will likely feed through to higher consumer price inflation in coming months.

“The upturn in the pace of economic growth and resurgent price pressures adds support to the ECB’s view that stimulus should be tapered later this year, but the details of the survey also justify the central bank’s cautious approach to policy.

“In particular, a weakening in business optimism to the lowest for over one-and-a-half years reflects intensifying nervousness about the outlook for the economy, notably in manufacturing, as trade-war talk escalates. Service sector companies – generally less affected by international trade – are more upbeat about the year ahead, though less so than earlier in the year as domestic political issues once again add to uncertainty about the outlook.

“With many service companies – notably transport – dependent on a healthy manufacturing sector, any downturn in trade could soon spill over to the service sector.”

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