MNI 5 Things: Eurozone Starts Q3 Weaker After June Rebound

--Euro Area July Composite PMI 54.3 v 54.9 June

By Jai Lakhani

     LONDON (MNI) - The Eurozone flash composite PMI was released on Tuesday,

with the reading dropping to a two-month low at 54.3. Here are five things we

learned from the release.

     1.) Eurozone Growth Pegged Back by Manufacturing: Manufacturing output in

the Eurozone grew at a rate unchanged from June's 19-month low. This stemmed

from a very weak expansion in factory order book inflows, which were the lowest

for nearly two years. The slowdown in factory order book growth was attributed

to weakened export gains, with new export orders posting the smallest monthly

rise since August 2016.

     2.) Services Failed to Maintain June's Momentum: After registering a

four-month high in June, July saw business activity growth in the services

sector expand at its second-slowest pace in the past year-and-a-half.

     3.) Germany's Strength Failed to Offset France's Weakness: The rate of

growth of Germany's private sector economy rebounded, with the July Composite

PMI recovering from a 20-month low in May to reach a five-month high. This was

driven by a strong increase in manufacturing output. However, Germany's

performance was juxtaposed with that of France, where a flat-lining

manufacturing sector resulted in the French Composite PMI posting its

second-weakest reading in 18 months.

     4.) Price Pressures Remained Elevated with Link to Tariffs and Trade Wars:

Companies continued to notice widespread price increases, most significantly for

fuel and other oil-related inputs. Costs were also higher for metals such as

steel. Interestingly, the price hikes were reported by companies to be linked to

tariffs and trade wars, with supplier delivery times -- notably from China --

widely reported to have widened again.

     5.) Surveys Point to Drop in GDP for Q3: Putting the unflattering data

together suggests a softening in GDP growth from an implied 0.5% in Q2 to 0.4%

in Q3. Chris Williamson, Chief Business Economist at IHS Markit argues that the

growth outlook hinges largely on whether domestic demand can remain

"sufficiently resilient to cushion the Eurozone economy from the potential

adverse impact of an escalating trade war on exports."

--MNI London Bureau; +44 203 865 3828; email: jai.lakhani@marketnews.com

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