The winding down of the Olympics in France, Taylor Swift’s Eras tour and the Euro 2024 football competition in Germany is likely to lead to a slowdown in the eurozone services sector in the second half of the year, a leading economist has warned.
Dr. Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, was commenting after new HCOB data indicated that after a promising start to 2024, economic growth in the eurozone has lost momentum in July, with business activity levels rising at the weakest pace observed in the current five-month expansion period.
‘A snail’s pace’
“The eurozone’s economy is growing at a snail’s pace in July,” de la Rubia commented. “Services are not picking up speed as they did earlier in the year, and the industrial slump continues.
“Despite a weak start to the second half, the PMIs and official growth figures for Q2 were unexpectedly strong. Our 0.7% growth forecast for the year remains conservative. The slowdown in the service sector is evident, with a decline in the PMI for three consecutive months, reduced hiring, and minimal new business growth.”
According to the HCOB survey data, the deterioration in demand for goods and services, especially from non-domestic sources, has weighed heavily on output. Employment levels have stagnated, and business confidence has slipped to a six-month low.
The seasonally adjusted HCOB Eurozone Composite PMI Output Index, which is a weighted average of the HCOB Manufacturing PMI Output Index and the HCOB Services PMI Business Activity Index, remained in expansion territory in July.
However, it declined from 50.9 in June to 50.2, indicating fractional overall growth and marking the weakest performance since activity levels began rising again in March.
Services remained the sole source of growth, but the private sector economy’s expansion lost further momentum due to a stronger contraction in factory output and a softer upturn in services activity.
Germany experienced a decline in business activity for the first time since March, while the French private sector continued to deteriorate, albeit at a slower pace. Conversely, Spain and Italy posted expansions sufficient to offset contractions in Germany and France.
Inflation ‘remains a concern’
De la Rubia also added that inflation in the eurozone “remains a concern”, with sales prices “climbing at the slowest rate in 38 months and input costs still high. This suggests wage pressure due to demographic changes, complicating the ECB’s goal of a 2% inflation target. The service sector slowdown is widespread across the eurozone, with growth decelerating in Germany, Italy, and Spain, while France shows minimal improvement.”
The HCOB Eurozone Composite PMI is compiled by S&P Global from responses to questionnaires sent to survey panels of manufacturers in Germany, France, Italy, Spain, the Netherlands, Austria, Ireland, and Greece, and of service providers in Germany, France, Italy, Spain, and Ireland, totalling around 5,000 private sector companies.
