The new PMI data was lower than expected, pointing to a slowdown in the economy.
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Growth in European business activity slowed in June, preliminary data showed on Friday, pointing to a rough end to the second quarter.
The flash composite PMI for the euro zone fell to 50.3 in June from 52.8 in the previous month. That was below analysts’ expectations of 52.5. A reading above 50 marks an expansion in activity, while a reading below 50 marks a contraction in activity.
“According to S&P Global’s latest HCOB flash PMI survey data, business output growth in the euro area came to a near standstill in June, suggesting renewed weakness in the economy after a brief growth recovery in the spring,” S&P Global said in a release.
“While concerns over energy and supply chains have eased since late last year, concerns about demand growth escalated further in June, particularly the impact of rising interest rates and the potential for a resulting recession in domestic markets and further afield .”
The numbers are “worrying,” Chris Williamson, chief business economist at S&P Global Market Intelligence, told CNBC’s European Street Signs in an interview.
“Rising interest rates, rising cost of living, all of those things are starting to have an impact,” he said.
Over the past 12 months, the European Central Bank has continued to raise interest rates to reduce inflation. However, higher interest rates are likely to lead to higher costs for businesses across the EU and thus tend to be a drag on output.
On a country-specific basis, data from Germany earlier in the day also showed a slowdown in Europe’s largest economy. Germany’s flash composite PMI fell to 50.8 in June from 53.9 in May. This was lower than market expectations.
“These figures are consistent with our view that after a technical recession, German GDP (domestic GDP) growth will remain subdued in the second and third quarters,” to clients.
Germany entered a technical recession in the first quarter of this year after the economy shrank by 0.3% in three months. In the last quarter of 2022, the German economy will shrink by 0.5%.
It was a similar story in France, where the Composite PMI fell to 47.3 from 51.2 in May, well below expectations of 51. This was mainly due to weakness in the services sector.
Euro zone bond yields fell after the German and French data. An economic slowdown tends to have a negative impact on bond yields. The yield on two-year German bunds fell 6.5 basis points to 3.21%.