The euro zone's preliminary reading was well below economists' forecast of 49.7 in a Reuters poll. “The eurozone economy is likely to move further into contraction territory in the coming months as the services sector continues to lose steam,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, adding that there was “ a greater probability” that the German economy would enter a recession in the second half of this year. You are viewing a snapshot of an interactive chart. This is most likely because you are offline or JavaScript is disabled in your browser. The services sector remained in growth territory, despite a drop in its PMI reading to a six-month low of 51.1. The decline in the manufacturing sector deepened further after its reading fell to a 38-month low of 42.7. Weakening demand triggered the steepest drop in manufacturing orders since 2009, while the services sector suffered its first drop in orders in seven months. Job growth continued, although at the slowest pace for more than two years.
The sign of a weakening economy came just days before the ECB is expected to continue raising its benchmark rates to tackle stubbornly high inflation. Economists believe this week could mark the end Job Function Email Database of the ECB's 12-month monetary tightening cycle if the eurozone economy continues to weaken. However, the central bank has said in recent weeks that it is concerned that high wage growth and rising service prices could keep inflation above its 2% target for too long. Markedly lower factory-gate prices in the eurozone manufacturing sector contrasted with sustained increases in service prices that reflected companies passing on higher labor costs to customers. However, the services inflation rate was the lowest since October 2021. Claus Vistesen, an economist at research group Pantheon Macroeconomics, said the PMI survey would be "dust to the pigeon's mill" if the ECB stops its rate hikes after this week.
Added that a "nasty" rise in second-quarter wages could still prompt him to raise rates again in September. Why does the Purchasing Managers Index matter? Based on a monthly survey of top executives from hundreds of companies in each country, the Purchasing Managers Index shows whether production, employment, orders, supplier delivery times and inventories increased, decreased or remained stable. since the previous month. More timely than hard economic data, the PMI survey is closely watched by central bankers and analysts for early signs that an economy is changing direction. Readings above 50 indicate that businesses are experiencing increased activity, while readings below 50 suggest the opposite.