Eurozone Private Sector Downturn Slows Markedly

The euro area private sector contracted at a much slower pace in June as lockdowns related to coronavirus pandemic were further relaxed, provisional survey results published by IHS Markit showed Tuesday.

The flash composite output index advanced more-than-expected to 47.5 from 31.9 in May. The score was forecast to rise to 42.4.

The latest gain took the PMI to its highest since February, though indicating an overall decline in business output. Output decreased again in both manufacturing and services, the latter showing the slightly steeper rate of decline.

The services Purchasing Managers’ Index climbed to 47.3 from 30.5 in the previous month. This was also above economists’ forecast of 41.0.

Likewise, the factory PMI rose to 46.9 in June from 39.4 in May. The expected level was 44.5.

The ongoing downturn in output was linked to a fourth consecutive monthly deterioration of inflows of new business, which in turn contributed to a further steep decline in backlogs of orders for companies to work through.

The relaxation of some lockdown measures, and planned easing in months ahead helped propel business sentiment for the coming year to its highest since February.

The rate of job losses moderated in both sectors. Average prices charges for goods and services dropped for the fourth consecutive month. Meanwhile, input prices increased for the first time since February.

“While second quarter GDP is still likely to have dropped at an unprecedented rate, the rise in the PMI adds to expectations that the lifting of lockdown restrictions will help bring the downturn to an end as we head into the summer,” Chris Williamson, chief business economist at IHS Markit, said.

Today’s PMI numbers provide further evidence of what initially looks like a textbook v-shaped recovery, Carsten Brzeski, an ING economist said.

As much as more than a month of lockdowns had sent economies into a standstill, the gradual reopenings of the last two months have led to a sharp rebound in activity. However, it is anything but certain that the Eurozone economy can maintain this momentum, Brzeski added.

By region, France led the improvement with output returning to growth for the first time since February. However, Germany lagged behind, reporting a steeper fall in output than the rest of the region outside of France and Germany.

France’s private sector expanded for the first time in four months in June. The composite output index rose to a four-month high of 51.3 from 32.1 in May. The reading was also above economists’ forecast of 46.3.

Output growth was recorded in both the manufacturing and service sectors, with the former posting its quickest rise in production since February 2018.

The manufacturing PMI improved to 52.1 in June from 40.6 in May. The expected score was 46.0. At the same time, the services PMI came in at 50.3 versus 31.1 a month ago and forecast of 44.2.

Although Germany’s private sector showed signs of a turnaround in June, the overall activity continued to shrink.

The flash composite output index gained to 45.8 in June from 32.3 in the previous month. This was the highest reading in four months and above economists’ forecast of 44.2.

There were identical rates of decline in services business activity and manufacturing production.

The manufacturing PMI advanced to 44.6 from 36.6 a month ago. The expected level was 41.5. At the same time, the services PMI stood at 45.8 compared to 32.6 in the previous month and well above forecast of 42.0.

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