Will Europe Avoid Recession As Services Get Revised Higher?
Skerdian Meta • 3 min read
The US economy officially fell into a recession in Q2, after we saw the GDP contract for the second quarter in a row last week. I thought that the Eurozone economy would be “the first of the gang to die”, as it has been showing bigger signs of weakness in recent months. Although manufacturing already fell in contraction in the Eurozone last month, while services approached pretty close to that level but still remain afloat. Today we have the revisions for the July Eurozone services numbers.
Germany July Final Services
- July final services PMI 49.7 points vs 49.2 prelim
- Composite PMI 48.1 points vs 48.0 prelim
A slight revision higher sees the German services sector post a marginal contraction in July, ending six months of growth in activity. Demand conditions are weakening as high inflation and economic uncertainty are weighing on sentiment. The prospect of a gas crunch will also not alleviate concerns on the outlook in the months ahead.
France July Final Services
- July final services PMI 53.2 points vs 52.1 prelim
- Composite PMI 51.7 points vs 50.6 prelim
A modest revision higher to initial estimates but the services reading is still the weakest since January with new business growth slumping to a 15-month low. That highlights worsening demand conditions and marks a significant headwind to the French economy to start Q3.
Spain July Services
- July services PMI 53.8 points vs 52.0 expected
- June services PMI was 54.0 points
Spain’s services sector continues to hold up in July, signaling another expansion with a modest rise in new business. But there are growing concerns about the outlook amid high inflation and economic uncertainty as business confidence slumps to its lowest in nearly two years.
Italy July Services PMI
- July services PMI 48.4 points vs 50.1 expected
- June services were 51.6 points
- Composite PMI 47.7 points
- Prior composite was 51.3 points
Italian business activity falls into contraction territory for the first time since January as a reduction in new business and services output weighed on the overall conditions in July. Adding to that is a fall in business confidence to its weakest since November 2020.
Eurozone July Final Services PMI
- July final services PMI 51.2 vs 50.6 prelim
- Composite PMI 49.9 vs 49.4 prelim
A slight revision higher to the initial estimates as outlined by the French and German readings earlier. However, the services print is still the weakest in 6 months with the composite reading – lowest in 17 months – reaffirming that the euro area economy has dipped into a marginal contraction in July. Here’s a cursory glance at the readings today:
S&P Global notes that:
“The eurozone economic outlook has darkened at the start of the third quarter, with the latest survey data signalling a contraction of GDP in July. Soaring inflation, rising interest rates and supply worries – notably for energy – have led to the biggest drops in output and demand seen for a almost a decade, barring pandemic lockdown months.
“A much hoped-for surge in consumer spending after the easing of pandemic restrictions is being thwarted as households grow increasingly concerned about the rising cost of living, meaning discretionary spending is being diverted to essentials such as food, utility bills and loan repayments. At the same time, business spending is being subdued by increased caution and risk aversion amid the gloomier economic outlook.
“Some encouragement can be gleaned from the drop in price pressures signalled by the survey, which should feed through to lower inflation in the coming months. However, this easing of inflation could fail to materialise if energy prices spike higher as we head towards the winter. Companies are also concerned that energy restrictions may also potentially lead to further constraints on economic activity, leading to new supply problems and fueling further price hikes.”