The latest eurozone PMIs show worse-than-expected figures and support the case for a rate cut by the ECB in September. The private sector virtually stagnated in July, and the German economy suffered a further contraction in industrial production.

With the stock market meltdown of the last few days behind us, investors are now focused on the final Purchasing Managers’ Indices (PMI) data that several countries start to release later this week and which may signal a recovery of the eurozone economy.

Still, preliminary survey data from S&P Global shows weaker-than-expected numbers, indicating a negative outlook for eurozone manufacturers. On the one hand, the manufacturing PMI declined from 46.1 in June to 45.3 in July. On the other hand, the services PMI fell from 52.8 to 51.9. While the PMI for total activity fell to 50.1 from 50.9 in June.

According to S&P Global, new orders recorded a second consecutive month of decline, while business confidence fell to a six-month low, prompting companies to halt hiring that began earlier in the year. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, noted that “Preliminary PMI survey data point to a near stagnation in the euro area private sector economy in July as the single currency bloc’s economic recovery has continued to fade”.

Eurozone recovery in doubt

There are no signs of the significant recovery in the eurozone that was expected during the second half of the year. The new orders sub-index remained at its lowest level in three months. This has resulted in an acceleration of the decline in output and an increase in job cuts.

As a result, employment in the eurozone experienced its largest decline since December 2023, with job losses continuing for the past 14 months. “This data dampens hopes of a recovery,” Commerzbank analysts said, expressing concern that “this rebound looks set to be later and weaker than expected”.

“The widespread belief that the eurozone recovery would accelerate significantly in the second half of the year has not materialised. At the beginning of the year, it seemed that the sector would recover from the recession, but doubts that emerged in June have been exacerbated by a further downturn in July,” explained de la Rubia.

The German problem

While macroeconomic data released today shows that industrial production in Germany rose by 1.4% compared to the previous month, year-on-year industrial production fell by 4%. At the same time, exports continue to fall, dropping by 3.4% month-on-month in June, compared to a 3.1% month-on-month decline in May.

On the other hand, according to the S&P reading, July’s PMI index was 0.3 points lower than June’s, remaining at 43.2. Therefore, it is clearly below the 50-point threshold, which would signify an increase in economic activity, and also below 44 points, which indicates a contraction in industrial production.

The Hamburg Commercial Bank warns that “this data illustrates a serious problem. The German economy has suffered a further contraction, dragged down by a dramatic decline in industrial production.”

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