Business sentiment has improved over the past few months, and first-quarter GDP growth has already picked up more than expected. This has led to hopes of a faster economic recovery than initially expected, but the June PMIs suggest that 2024 will not be a Cinderella story for the eurozone economy. The decline in the composite index from 52.2 to 50.8 suggests that second-quarter growth may be slightly slower than the first quarter's 0.3% q/q.
Output in the manufacturing sector fell significantly in June, while the pace of growth in the services sector also slowed somewhat. New orders and employment growth declined in June, generally pointing to a slight setback in the recovery process. On a positive note, the overall reading of 50.8 still indicates modest growth, and most importantly, the survey shows that inflationary pressures have eased again, consistent with an environment that leaves open the possibility of further rate cuts by the ECB this year.
In terms of growth, this is a bit of a reality check, but not a big one. It is just one survey, and business sentiment is in line with expectations for modest growth in the second half of the year, with consumer purchasing power recovering and financial conditions improving somewhat. But with euro risks resurfacing around the French elections and rising interest rates still permeating the economy, it is not a time to let our guard down. The eurozone economy is in a stronger position than it was in 2023, but headwinds remain.
