Euro area PMIs to soften heading into Q3

The average PMI levels for both the manufacturing and service sectors have been consistent with GDP growth of 0.4% in Q2.

In H2, an overall softening of the PMIs is expected as the euro area continues its cyclical recovery, Societe Generale estimates the economic growth of the economy to be at 0.3% qoq in Q3 and 0.4% qoq in Q4 and expects further growth in July in the manufacturing and services sectors but with both at a lower rate than in H1. 

According to Societe Generale, "Exports should start to respond to the euro's weakness, accompanied by higher confidence in the manufacturing sector, but the contribution is likely to GDP growth from net exports to be modest. Indeed, the weakness in the euro will help gaining export market shares, but this gain can only partially offset the weakness in global trade."
PMIs are expected to hover around current levels in the coming months, with a modest potential for upside surprises. Analysts say that consumer spending is set to slow as inflation edges up, which will weigh on business confidence in the services sector. 

Societe Generale agrues, "In terms of business confidence, -this suggests some downward adjustment. The manufacturing PMI should soften from 52.5 to 52.3 in July, while the services PMI should decrease from 54.4 to 54.1. In the breakdown of the June survey, growth of new businesses slowed for the third month in a row, which supports our view of a softening of growth in both sectors. It is worth noting that, although the German and French manufacturing PMIs are expected to increase, we forecast a fall in Spain and Italy. This is because, manufacturing PMIs have reached an upper bound given the historic relationship between PMIs and economic growth."