- Prior 50.5
- Manufacturing PMI 49.8 vs 49.7 expected
- Prior 49.5
- Composite PMI 51.0 vs 50.8 expected
- Prior 50.6
The readings here are encouraging, even if the industrial output index hit a 4-month low. Overall business activity climbs to a 11-month high, driven largely be the continued improvement in the services sector. New orders are also continuing to stabilise and that is helping to underpin the recovery as the pace of input cost inflation eased further. That being said, companies still raised their output prices at the same pace as in June. HCOB notes that:
“The eurozone economy appears to be gradually regaining momentum. The recession in the manufacturing sector is coming to an end, and growth in the services sector accelerated slightly in July. Our GDP Nowcast, which also takes into account the HCOB Flash PMI, points to robust economic growth for the third quarter. However, further data should be awaited before too much weight is given to this assessment.
“Manufacturing output has expanded cautiously for five months in a row. Germany is playing a key role here and, together with other countries, has been able to more than offset the weakness in France. However, for the manufacturing sector in the eurozone to return to solid growth in the long term, French industry must also regain its footing. The current political uncertainty in Paris is certainly an obstacle to this.
“In Germany, slight economic growth is on the cards for July, while France is set to see a slight contraction. This contrast is likely to be accounted for in part to the political environment. In France, this is characterized by the plan of massive budget cuts and a looming vote of no confidence against Prime Minister François Bayrou. In Germany, on the other hand, the economy can hope for higher government spending, which will ideally be accompanied by higher private and public investment. The corresponding mood is reflected in the outlook for the future in France, which has fallen by around eight points in the manufacturing sector, an unusually sharp decline. In Germany, the corresponding index has only fallen by a good two points.
“There is good news for the ECB, as the disinflation trend has continued in the closely watched service sector. Prices for goods did not fall further in July, but the stronger euro and US tariffs are likely to exert downward rather than upward pressure on inflation in the coming months.”
