The difficulties in the Eurozone manufacturing sector are intensifying. Industrial production fell again in May, by -0.6% m/m (-0.8% m/m for the manufacturing index). The deterioration in the PMI indicators for the euro area in June does not bode well for Q3, with a fall in the manufacturing index (-1.5 points to 45.8) and a decline in all the subcomponents (production, employment, new orders, stocks of purchases, delivery times). The input price index (which is not included in the calculation of the aggregate manufacturing index) is back above the expansion zone for the first time since February 2023. This is consistent with the trend in producer prices, for which the monthly decline has been slowing for several months and is now close to zero.[1] The PMI for services is still holding up well, although it deteriorated slightly in June, due to a fairly sharp fall in the twelve-month activity forecasts (-3.1 points to 61.0, the lowest in 2024).
Despite current gains in purchasing power, households' reluctance to consume has persisted, reflected in a further rise in the savings ratio in Q1 (to 15.3% of disposable income, the highest level ever seen in the Eurozone outside the Covid period). However, some positive developments are emerging. Retail sales in the euro area rose slightly in May (+0.1% m/m), which was enough to push the annualised 3m/3m rate to its highest level since December 2021, at 2.2%. At the same time, the European Commission's survey shows that households' intentions to buy durable goods have recovered significantly since the start of the year and are now at their best level for over two years.
Our Nowcast for Q2 currently stands at 0.3%, in line with our initial forecasts. Q3 should see growth in the Eurozone accelerate slightly to 0.4% q/q. With a flat carryover, average annual growth in 2024 should remain anchored below 1% (at 0.9%), but 2025 should be much better, supported by successive interest rate cuts.
Article completed on 16/07/2024
