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EMU CommentPMI rises for the first time in five months

  1. Composite PMI surprised on the upside...
  2. ...due to stronger Service PMI
  3. Employment and inflation improved
Composite PMI surprised on the upside...
The flash Composite PMI for the eurozone increased to 54.8 in June from previously 54.1. As we expected, the PMI surprised on the upside (consensus saw a decrease to 53.9), finally giving weight to hopes that the slowdown in economic activity is temporary. Overall the level of PMI continues to indicate robust annual GDP growth of close to 2.5 percent in the second quarter (first graph) as in the first quarter, but it's still in line with our forecast of GDP growth having peaked.
...due to stronger Service PMI
As expected, the rise in PMI was due to higher service PMI (increased to 55.0 from 53.8 in May) and we see that confidence was bolstered by improvement in labour markets as well as decreasing concerns over Italy. Consumer confidence in June was still high despite decreasing to an eight-month low (probably mainly due to higher energy prices) after having held up surprisingly well the previous couple of months. Manufacturing PMI, on the other hand, extended its continuous decrease this year and fell to 55.0 from previously 55.5, which is still a bit worrying. However, we got a comforting sign of stabilsation ahead, as the new export orders index rose for the first time in seven months. On the national level, French Composite PMI rose the most to 55.6, while the German PMI continued to lag behind at 54.2.
Employment and inflation improved
Today’s PMI brings us some assurance that, in our view, growth in the eurozone will improve after a somewhat prolonged soft spot. This also confirms the view of the ECB that weaknesses are probably related to temporary factors. Also, the ECB should find some comfort in that employment and inflation indices both rose in June after the weakening over the past four months. This lends support to the idea that the higher level of inflation will be sustained probably after some moderation in the next couple of months (second graph).

Source: Macrobond


Source: Macrobond


Rasmus Gudum-Sessingø

Senior Economist


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