Euro Area PMIs to Soften Heading Into Q3

As we enter H2, an overall softening of the PMIs is expected as the euro area continues its cyclical recovery.Therefore further growth is expected in July in the manufacturing and services sectors but with both at a lower rate than in H1. In terms of business confidence, this suggests some downward adjustment.

"An economic growth of 0.3% qoq in Q3 and 0.4% qoq in Q4 is forecasted. The manufacturing PMI should soften from 52.5 to 52.3 in July, while the services PMI should decrease from 54.4 to 54.1", says Societe Generale. 

In the breakdown of the June survey, growth of new businesses slowed for the third month in a row, which supports our view of a softening of growth in both sectors. It is worth noting that, although we expect the German and French manufacturing PMIs to increase, we forecast a fall in Spain and Italy.

This is because and considering our growth projections manufacturing PMIs have reached an upper bound given the historic relationship between PMIs and economicgrowth.

Looking ahead, PMIs are expected to hover around current levels in the coming months, with a modest potential for upside surprises. Consumer spending is set to slow as inflation edges up, which will weigh on business confidence in the services sector.

Meanwhile, exports should start to respond to the euro's weakness, accompanied by higher confidence in the manufacturing sector, but we expect the contribution to GDP growth from net exports to be modest.

Indeed, the weakness in the euro will help gaining export market shares, but this gain can only partially offset the weakness in global trade

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