Eurozone business activity growth slowed sharply in June

A reading above 50 indicates growth, while a reading below 50 indicates contraction.

Manufacturing activity fell to 46 in June from 49.3 in the previous month.

But the data “suggests that GDP will continue to expand in the second quarter,” S&P Global said. But the decline in the June PMI suggests “growth may be slower than initially expected,” said Bert Collin, senior euro zone economist at ING Bank.

Economists agreed that the European Central Bank is unlikely to cut interest rates again in July, but further cuts are possible before the end of the year.

“The HCOB PMI does not provide a basis for the ECB to make further rate cuts in July,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank (HCOB).

But economists say the situation in France, the EU's second-largest economy, is weighing on the single currency area's economic performance.

“It is clear that France's economic weakness is making a major contribution to the worsening economic situation in the euro area,” de la Rubia said.

The survey showed that output in both the services and manufacturing sectors was declining.

Dellarrubia said the incident could be linked to the crushing defeat of President Emmanuel Macron's party by far-right forces in this month's European Parliament elections and his call for early voting on June 30.

“This unexpected turn of events has created a lot of uncertainty about future economic policies and likely caused many companies to put the brakes on new investments and orders,” he added.

However, Franziska Palmas, senior European economist at Capital Economics, warned against “putting too much emphasis” on this point, as “France's PMIs started to fall in May, before the political turmoil began.”

In contrast, business activity in Germany, the EU's largest economy, increased for a third consecutive month, the survey showed.

Jagraz/ec/yad