Euro area economic output remains stable in June; service sector growth slows

Economic output of the euro area remained steady at a moderate pace in June. The final Markit Eurozone PMI Composite Output Index came in at 53.1 in June, unchanged from May.

Thus the average reading for the headline index for the second quarter of 2016 was slightly below that for the opening quarter, noted Markit. Manufacturing production recorded its most rapid growth in the year so far in June. It has outperformed the service sector for the first time in three months. Service sector activity increased at the most decelerating pace in nearly one-and-a-half years.

The final Eurozone Services Business Activity Index dropped to 52.8 in June from May’s 53.3. However, it was more than the flash estimate of 52.4. The headline figure has hinted at growth throughout the past 35 months. Expansion in Germany decelerated to the weakest since May 2015, whereas France witnessed a negligible contraction after back-to-back expansions in the earlier two months.

Expansion in output accelerated outside the ‘big-two’ service economic to a four-month high. Italy registered renewed growth in service sector, while Spain registered the most rapid pace of expansion since November 2015. Ireland registered the most rapid pace of growth overall, although slower than in May.

New business saw similar trends. Service sector employment in the euro area increased for the 20th straight month in June. Pace of growth in job was the highest in 2016 so far. Part of the rise in staffing showed increasing levels of outstanding business. Work backlogs gathered at the highest pace since January 2016.

Growth in job reached almost a nine-year record in Spain. Meanwhile, job growth in Italy and Germany reached six-month highs. Moreover, Ireland recorded a significant increase in headcounts. On the contrary, France registered a slight reduction in employment.

Meanwhile, business sentiment continued to decline, but the overall degree of positivity was at a seven-month low in June. Sentiment in Spain and France rebounded, whereas optimism in Italy, Germany and Ireland alleviated.

Price discounting continued in the euro area service sector in June. Average output prices declined for the ninth consecutive month and at a slightly more rapid rate than in May. Italy and France registered reductions that countered increases elsewhere. The cost inflation rate facing businesses continued to be strong in June, having alleviated just slightly from May’s 41-month high, noted Markit. Italy and Ireland recorded the sharpest increases in input price.