Eura area's June PMIs suggests stable growth of 0.4% qoq in Q2 15

Euro area's June PMIs data is schedule to release Today.

"Further growth in both the manufacturing and services sectors is expected in Junee. In particular, we estimate that the manufacturing PMI should increase from 52.2 in May to 52.5. Meanwhile, the services PMI should increase from 53.8 to 54.1 Therefore, despite a similar improvement in June, the relative strength seen in the services sector since last autumn is likely to continue", estimates Societe Generale. 

In the past months, the service sector has been supported by household consumption, whereas corporate spending and export growth, which are more significant for the manufacturing sector, have taken longer to respond to the positives of a lower oil price and weaker euro. Therefore, Societe Generale forecasts, GDP growth is expected to post 0.4% in Q2 2015. 

The composite PMI has softened for three consecutive months (from 54.0 in March to 53.6 in May). In particular, the rates of expansion in output and new orders slowed to a three month low. This suggests that the cyclical recovery continues, but is perhaps showing the first signs of losing growth momentum. Domestic demand will begin to ease going into Q3 due to the recent rebound in the oil price, which will, in particular, weigh on the services PMI. 

This can be seen in the breakdown of the business surveys; in May, input costs rose at the fastest pace since summer 2012. This input price inflation also stems from the weak euro, which increases purchasing costs. On the whole, the euro area is supported by QE, low oil prices (compared to one year ago), easing credit conditions and a more neutral fiscal stance.

However, businesses are still likely to be uncertain as to whether the green shoots of the current cyclical recovery can translate into tructural and sustainable growth - particularly with the turning of oil prices and inflation, adds SocGen. 

"The German manufacturing PMI is expected to bounce from 51.1 to 51.5, and the services sector PMI to increase from 53.0 to 53.4. For the French manufacturing PMI, we forecast a slight increase from 49.4 to 50.0, which would reflect a catching up from surprisingly low levels and an easing of the contraction of the manufacturing sector. We forecast the services PMI is to increase from 52.8 to 52.9, mirroring recent improvements observed in the Bank of France survey", said Societe Generale in a report on Tuesday.