Higher Borrowing Costs A Factor In Weaker Services PMI

Italian PMI disappointed in June, posting a 52.2 reading (vs 53.1 expected and 54.0 prior), which combined with the weak manufacturing PMI (43.8) released Monday meant the composite reading fell into contractionary territory (49.7 vs 51.0 expected, 52.0 prior) for the first time this year (since December 2022).

• Overall while the headline Services figure showed continued expansion, there were evident signs of weakness in the key sector. Most notably throughout the report, rising interest rates are cited as a factor in weaker activity and sentiment, suggesting that the ECB's tightening is having an impact on Italian output.
• In contrast to the below-expected Spain Services PMI reading released earlier, Italian sentiment fell to a 6-month low with cited concerns including higher borrowing costs, recession fears and inflation persistence. Indeed, the Spanish report doesn't mention interest rates as a factor at all.
• On inflation, input costs hit the lowest in 2 years, though wages reportedly rose and suppliers were seen pushing price increases. Average output price inflation weakened to the lowest level since Oct 2021.
• New business growth while expansionary was the softest of the year so far (again on rising interest rates and widening economic activity).
• Services firms kept up hiring to relieve backlogs but the net rise in employment was weaker, and "there were some reports of the non-replacement of leavers given an uncertain outlook".

Source: HCOB, S&P Global