Euro Zone PMI Higher, Growth Subdued

Euro zone manufacturing growth stayed subdued in July as worries about the trade tensions, tariffs, and growing prices capped the amount of optimisms, according to a survey that was released on Wednesday.

HIS Markit’s July final manufacturing Purchasing Managers Index only moved up to 55.1 from June’s 18-month low of 54.9, unchanged from a prior reading and still well above the 50 level that separates growth from contraction.

The output index made a similar minor move, inching up to 54.4 from June’s 54.2, which was its rock bottom reading since November 2016.

“A marginal uptick in the PMI provides little cause for cheer given it is the second weakest number for more than one-and-a-half years. Worse may be to come,” stated IHS Markit’s chief business economist Chris Williamson. “The clear implication is that manufacturers may have to adjust production down in coming months unless demand revives.”

However, a new orders PMI matched June’s 22-month low last July, based on the data on the survey, which kept optimism in check.   The future output index was 62.4, higher from June’s 60.7, but was one of its lowest readings in two years.

Demand may also have been impacted by rising prices.  Inflation across the bloc was 2.1 percent last month, higher than European Central Bank’s goal of just below 2 percent, according to official preliminary figures that were showed on Tuesday.

Last week, the ECB reaffirmed plans to end its 2.6 trillion euro stimulus program this year and keep rates at their record low levels “through the summer of 2019.”

“The survey responses indicate that the slowdown likely reflects worries about trade wars, tariffs, and rising prices, as well as general uncertainty about the economic outlook,” stated Williamson.

An escalating trade spat between the United States and its trading partners stays a real risk in the euro zone and has prompted many economists to slash their growth forecasts and estimates.

Euro zone economic growth slowed down further during the second quarter, according to the preliminary data showed on Tuesday.  The reasons behind such sluggish performance were the concerns over a possible full-blown trade war between the European Union and the United States.

Meanwhile, activity in British manufacturing sector grew at its slowest pace in three months in July, based on a closely watched business survey.

“UK manufacturing started the third quarter on a softer footing, with rates of expansion in output and new orders losing steam.  The upturn in the sector has eased noticeably since the back-end of 2017, meaning that manufacturing has failed to provide any meaningful boost to headline GDP growth through the year-so-far,” stated Rob Dobson, who is the director at survey compiler Markit.

“If the combination of weaker growth and a softening of pipeline cost pressures at manufacturers is mirrored in the larger service sector, the Bank of England’s decision will be far from unanimous and they may even yet find some cause for pause,” Dobson added.

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