Euro zone recovery hits the skids
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EURO ZONE RECOVERY HITS THE SKIDS
The optimism towards the euro zone's economy at the start of the year has taken another hit on Wednesday, after PMI readings for the bloc signalled the recovery might have already petered out.
The euro zone composite PMI dropped to 50.1 in July from 50.9, below expectations for a rise to 51.1. A reading above 50 indicates growth since the previous month.
Within the report, closely watched measures of input prices increased sharply, with the pace of inflation at a 3-month high, while output prices increased at a softer pace.
"Today's PMI readings do not paint a rosy picture of the region's growth outlook and once again illustrate the sluggishness of its recovery," says Carsten Brzeski, global head of macro at ING.
It's worth highlighting European Central Bank President Christine Lagarde last week said risks to the growth outlook were tilted to the downside. But analysts are mixed on what the data means for the chances of another cut in September, after lowering rates in June.
"If only growth was considered, you find a strong argument for a rate cut in September by the ECB. However, prices data did not provide hoped for relief." writes Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.
"Our conclusion is that while a September rate cut will most probably be exercised, it will be much trickier to follow this path in the months thereafter, unless the downturn morphs into a deep recession."
Commerzbank also sees a September rate cut, but takes a different view on the price pressures from the report.
"The only positive news comes from the sub-category of the sales prices for services," says Commerzbank economist Vincent Stamer, highlighting that purchasing managers are observing the lowest price pressure on sales prices for three years.
"Both the weak momentum in the sentiment indicators and the assessment of service prices are likely to encourage the ECB to cut key interest rates again in September," Stamer adds.
(Samuel Indyk)
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