Purchasing managers’ indices: Service companies offer chance for a breather, but weak quarterly balance

According to preliminary results, the purchasing managers‘ indices in the euro zone continued heading downhill in June, albeit only in the manufacturing sector. The sentiment barometer in this sector declined for the sixth time in a row. Fears of the repercussions of a trade war with the USA and political uncertainty appear to be increasingly spreading. Service companies, by contrast, were again in a more optimistic mood. According to IHS Markit, however, this may have been due to a normalisation of business in June following the unusually high number of public holidays in May. Talk of a genuine turnaround is therefore not possible.

The composite index for the euro zone climbed from 54.1 to 54.8 index points. The purchasing managers‘ indices also remained above the growth threshold of 50 index points in June. The euro zone economy is therefore expected to have recorded renewed growth in the second quarter but once again at a more moderate pace. For the sentiment barometers have generally fallen compared with the first quarter. The quarterly average is even the lowest since the end of 2016.

All in all, the rather subdued sentiment among purchasing managers compared with the beginning of the year is commensurate with our forecast picture. We recently lowered our growth forecast for 2018 from 2.0 to 1.9 percent. Next year, we do not expect the economy to grow by more than 1.5 percent.

The German purchasing managers were inconsistent in June. While sentiment in the manufacturing industry has deteriorated again, a brighter mood can be noted among service companies. According to the survey results, service companies reported a higher intake of new orders and also improved employment intentions. In the manufacturing sector, production is expected to have picked up, albeit at a weaker rate. The increase in new orders was also as low as in March 2016. The more upbeat mood among service companies sent the composite index up to a two-month high of 54.2 index points.

In France, purchasing managers from the services sector were also somewhat more optimistic again in response to good business utilization and new orders. Here the sub-index recorded a quite strong gain of two points and also reached a two-month high of 56.4 points. In contrast, manufacturing fell to its lowest level in 19 months. IHS Markit attributes this to weak production growth and only a slight rise in incoming orders. All in all, the brighter sentiment among service companies was sufficient to nudge the French composite index up by 1.4 points to 55.6 points.

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