Euro area’s business activity growth drops in July

Business activity growth in the euro area dropped in July. The Markit Eurozone Flash PMI fell to an 18.-month low of 52.9 in July. The pace of growth of output throughout services and manufacturing eased marginally. But the overall growth rate continued to be slightly slower than the average witnessed so far in 2016, while employment rose at the most rapid pace in nearly five-and-a-half years as firms stimulated capacity consistent with the overall upturn in the euro area economy.

Both the sectors recorded slight moderation in growth rates, falling to a one-and-a-half year low in services. But manufacturing sector growth eased to just a two-month low.

The manufacturing sector’s stronger performance was aided by additional upturn in new export orders, in turn connected to the weaker euro, noted Markit. But, expansion pace of exports decelerated slightly in July from June’s six-month high, partially because of subdued sales to the UK.

The surveys, even if hinting at just modest economic growth, have recorded a continual growth in business activity in the euro area for 37 months. The sustained growth has provided several companies rising sentiment to employ additional staff. Employment throughout the two sectors rose in July at the most rapid pace since February 2011. In the last four months, the pace of job creation has improved steadily.

The upturn in job market was led by service sector, hiring additional staff to the greatest degree witnessed since February 2008. Even if hiring in factory decelerated and continued to be weak by comparison, the July month saw one of the largest gains in manufacturing employment registered in the past five years, said Markit. Whether the job creation pace will continue to bolster remains uncertain as business expectations in service sector dropped to a 19-month low, stated Markit.

Meanwhile, increasing oil prices and weaker euro have been cited as the main drivers of input cost inflation reaching one-year high. However, the average selling prices for goods and services dropped marginally again.