Eurozone economic growth shows ‘signs of faltering,’ says key business survey

FRANKFURT – Eurozone economic growth has deteriorated sharply as business expectations point to risks of a looming downturn, a leading survey of the region’s businesses suggested Thursday.

The so-called composite PMI fell to 51.9 points in June from 54.8 points, marking a 16-month low as manufacturing output contracted for the first time in two years and service sector growth cooled considerably. It’s now just a shade above 50 points, the cut-off marking an economic expansion.  

The slowdown signals a rate of GDP growth of just 0.2 percent at the end of the second quarter, down sharply from 0.6 percent at the end of the first quarter.

“Eurozone economic growth is showing signs of faltering as the tailwind of pent-up demand from the pandemic is already fading, having been offset by the cost of living shock and slumping business and consumer confidence,” said Chris Williamson, economist at S&P Global Market Intelligence, which compiles the survey.

The second half of the year is looking even less encouraging as companies have scaled back their business expectations for output over the coming year to the lowest since October 2020.

“Business confidence has fallen sharply to a level rarely seen prior to the pandemic since the region’s economic contraction during the 2012, hinting at an imminent downturn unless demand revives,” Williamson cautioned.

The PMI is based on a survey of 5,000 companies and is considered one the most reliable leading indicators for economic growth.

The results “mark an important break from recent PMI readings which had pointed to some initial resilience to the many headwinds clouding the eurozone economic outlook,” said Ricardo Amaro, an economist at Oxford Economics. “The breakdown of the figures pointed to a broad-based slowdown.”

Economists at Commerzbank and ING said the data points to the European Central Bank having to tread carefully when raising interest rates.