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    Eurozone PMI indicates slowing output growth in June - ING Sandeep Kanihama

    Bert Colijn, Senior Economist at ING, suggests that the political uncertainty dampens growth as Europe holds its breath over Brexit voteKey Quotes“The Eurozone composite PMI decreased slightly in June, from 53.1 to 52.8. While it is a marginal decline, this does indicate the weakest reading of the survey since late 2014. This adds to the view that that growth in the Eurozone has probably moderated in the second quarter. Political uncertainty, not in the last place about a possible Brexit, curbs output growth at the end of the second quarter.Even though this is the case, hiring and new orders remained strong in the Eurozone according to the survey, which indicates that the outlook for the economy in the months ahead is still strong in case no major political event happens. If the Brits vote to remain in the EU today, this will likely mean that growth will continue at a relatively decent pace over the summer months.The service sector disappointed in June though, as new business and new orders both slowed. Uncertainty about the political environment is holding back expectations in the sector, although the domestic Eurozone economy looks fundamentally strong with accelerated hiring and relatively high consumer confidence. Yesterday’s release of Eurozone consumer confidence in June showed that prospects of a Brexit does not exactly send shivers down Eurozone consumers’ spines, as incomes are boosted by low prices and people put back to work.Input prices are now strengthening as oil and commodity prices continue to rebound, but businesses did not pass on those higher prices to consumers as competitive pressures persist in the larger Eurozone economies. This indicates that optimism about a pickup in core inflation seems premature, if anyone had any. The inflation environment will therefore likely continue to be dominated by swings in energy prices in the months ahead, as this survey indicates that a pickup in core prices is not around the corner.Differences by country were large in the survey as the largest two Eurozone economies gave off different signals. The German PMI was strong, but the French one revealed ongoing weakness. While warnings about possible significant impact on German growth had been given off by institutes like DIW, German businesses have given Brexit fears a big “meh” in this survey. Increased new orders, also from abroad, are helping the German economy along. In France, this is much different. The French PMI fell to a four-month low, indicating contraction in the business economy. Especially manufacturing fell further, while services activity remained stable this month.”

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