PMI reports from Europe continue to show severe signs of stress. Yesterday, Markit reported Eurozone PMI rises in June but still signals steep rate of contraction

Key points for June

  • Final Eurozone Composite Output Index: 46.4 (Flash 46.0, May 46.0)
  • Final Eurozone Services Business Activity Index: 47.1 (Flash 46.8, May 46.7)
  • Near-record fall in service sector confidence

The Eurozone economic downturn extended into a fifth consecutive month in June, as the debt and political crises continued to have an adverse impact on both the manufacturing and service sectors.

The spreading of the economic malaise from the periphery of the currency union to its core continued in June. German output contracted at the fastest rate in three years, and France also saw a further decline (albeit slower than in May). Italy and Spain, meanwhile, remained in deep recessions.


Chris Williamson, Chief Economist at Markit said:

“The final Eurozone PMI for June picked up slightly on May, but the rise failed to avoid the region seeing the strongest quarterly downturn for three years in the second quarter. The survey points to the economy having contracted by approximately 0.6% in the three months to June.

“Even Germany looks to have fallen into a renewed decline, though only a very modest drop in output is signalled. The pace of downturns in other major euro member states is far more worrying. Output in Italy looks to have fallen by 1% in the second quarter, while declines of 0.6% and 0.5% are signalled for Spain and France respectively.

“Job losses are mounting as a result of falling demand, as companies seek to reduce costs and prepare for the possibility that worse is to come. Service sector companies’ expectations for the year ahead showed one of the largest declines in the history of the survey, pointing to a huge drop in confidence due to the worsening political and economic crises.”

Key Phrase: 

The survey points to the economy having contracted by approximately 0.6% in the three months to June.

German Construction Activity Plummets 3rd Month

A Markit report out today reveals a solid reduction in German construction activity

The seasonally adjusted Germany Construction Purchasing Managers’ Index® (PMI®) – a single-figure snapshot of overall activity in the construction economy – edged up from May’s reading of 44.7 to 46.0 in June, signalling a further, albeit slightly slower, decrease in overall building activity across Germany. Construction activity in the Eurozone’s largest economy has now fallen for three consecutive months.

In contrast with the overall trend in output, both residential building activity and civil engineering work fell at faster rates during June. The latter posted by far the sharpest contraction of the monitored sub-sectors, with the rate of decline steeper than the series long-run average.

Commercial construction activity meanwhile decreased at a notably slower rate than that registered during the previous month. The decrease in output levels in June reflected a further fall in new order inflows, which were down for the third month running and at the steepest rate since February.

Reports from panel members noted a general decrease in demand, as well as a reduction in intakes of new business from the public sector. Fearing further declines in new orders as a result of uncertain economic conditions in the Eurozone, Germany constructors were on balance pessimistic of a return to growth in the next 12 months in June. This ended a period of optimism in the sector that stretched back to February.

Once again this is as I expected and I still expect things to get much worse, including Germany.

In response to eurozone weakness, the ECB cut rates to .75%, a record low amount, but it will not help one bit.

Please see Global Uncoordinated Panic; Bond Market Response Was “Not Enough”; Words “Heightened Uncertainty” Explained for details.

Mike “Mish” Shedlock
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