Eurozone June final services PMI 50.5 vs 50.0 prelim

• Prior 49.7
• Composite PMI 50.6 vs 50.2 prelim
• Prior 50.2

The composite reading points to a marginal growth in overall business activity but at least things are holding up towards the end of Q2. A further decline in new business is still limiting any real optimism, with demand conditions still looking shaky at best. And despite input price inflation easing to a seven-month low, it is still on the high side. So, concern about prices hasn’t really gone away – at least not entirely. HCOB notes that:

“The service sector has been more or less stagnant since April. A look at the longer-term trend reveals that the average
pace of growth seen since the summer of 2021 has fallen short of the PMI full survey average. This marks a prolonged
period of relatively weak growth, and one which has never been surpassed in length over the course of the PMI’s 27 years of
data. The last two recessions in the service sector, which were the result of the financial market crisis of 2008/2009 and the
euro crisis of 2012, followed a relatively rapid slowdown in growth and are unlikely to repeat themselves in this form. This
may be due to the structural aspect of labour shortages, which has become apparent since COVID-19. This has meant that,
unlike in the past, companies have refrained from cutting jobs, even in weak quarters. As a result, private consumption, the
key growth driver for the service sector, has not slumped massively since 2021. In June, companies even hired more people
than in May, and a recession may therefore be avoided in the foreseeable future.

“The question is whether a robust recovery is even possible after the sluggishness in the service sector in recent years. This
will probably be difficult for the eurozone as a whole, but in Germany, the largest eurozone economy, it is certainly a
probable outcome, given the extraordinary stimulus package that the new government is currently putting in place. Even if
civil engineering and the defence sector will benefit most from this, the fiscal stimulus is also likely to spread to the service
sector, especially in the coming year. In any case, expectations for the next 12 months have improved for the eurozone,
although the figure remains below the long-term average.

“The European Central Bank is unlikely to be entirely happy that sales prices in the services sector rose more strongly in
June and that input prices are also rising sharply. In view of other factors such as the strong euro and the deflationary effect
of US tariffs on the eurozone, the significance of services inflation, which looked more critical a year ago, is receding
somewhat into the background.”