Analyst: Gazing into the economic abyss

German economy cools
Analyst: Gazing into the economic abyss

The monthly PMI is intended to reflect the mood of industry and service providers. The value reflects expectations of Germany’s economic development. According to the latest assessment, economic growth in the euro zone is gradually losing momentum.

Economic growth in Germany and the Eurozone is surprisingly slowing. The index of private sector purchasing managers – industry and service providers combined – fell in June by 2.4 to 51.3 points and therefore to a low in six months, as announced by S&P Global in its monthly survey of around 800 companies in Germany. Economists had only expected a drop to 53.1 points. The barometer, closely watched on the financial markets, thus only slightly exceeds the 50-point mark, from which it signals growth. The data showed “that the German economy has lost virtually all of the momentum it gained from the easing of corona restrictions,” said S&P Global economist Phil Smith. In the services sector, growth weakened sharply for the second consecutive time.

While the barometer of service providers alone unexpectedly fell from 55.0 to 52.4 points, the industry index fell from 2.8 to 52.0 points and thus reached its lowest level for almost two years. “The decline in foreign orders proved to be a drag,” S&P explained. In addition, domestic demand is also under pressure due to heightened economic uncertainty and still high inflation. “The figures are generally disappointing,” says Ralfcircul, an analyst at Helaba.

Unfavorable framework conditions related to high prices, especially for raw materials and preliminary products, delivery bottlenecks, staff shortages and rising interest rates have clouded the outlook more clearly than before . The rise in interest rates expected by the European Central Bank (ECB) for July is therefore out of the question, with monetary policy having to take countermeasures due to record inflation of 8.1% in the euro zone. “But longer-term interest rate expectations will likely be dampened.”

“Economic growth is gradually running out of steam”

The purchasing managers’ index for the eurozone economy as a whole unexpectedly fell 2.9 to 51.9 points, its lowest level in 16 months. “Economic growth in the eurozone is starting to falter,” said Chris Williamson, chief economist at S&P Global Market Intelligence. “Because the hitherto strong tailwind of pandemic-related demand backlog is increasingly fading and has been overcompensated by the shock of rising cost of living and falling confidence businesses and consumers.” The data pointed to current growth “of a paltry 0.2%”, after more than 0.6% in the first quarter.

Businesses looked to the future with less optimism than they did in October 2020. High inflation, lingering supply chain issues and now the increasingly real risk of a market shutdown. Gas supplies from Russia are increasingly weighing on the economy, said LBBW expert Elmar Völker. . “We are increasingly looking towards an economic abyss – we haven’t fallen yet, but there aren’t too many steps left to the cliff.” In France too, the economy has slowed noticeably and grown slower than at any time since the headwind caused by the Omicron wave in January.

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