Eurozone edges towards stability
The eurozone showed further signs of stabilisation in June, with the flash composite Purchasing Managers’ Index (PMI) rising from 48.5 to 49.5, reaching its highest level in three months. Readings were better than expected, with services PMI increasing to 48.9 from 47.7, also reaching a three-month high. This helped offset a slight decline in the manufacturing PMI, which slipped slightly from 51.6 to 51.3, a four-month low.
According to S&P Global’s Chris Williamson, the eurozone is showing enough resilience to avoid a recession, with data pointing to flat GDP growth in the second quarter. This improvement was mainly driven by the services sector, with a rebound in tourism and leisure-related activities as industries continued recovering from disruptions that were caused by the Iran war. Meanwhile, the manufacturing sector, although experiencing a slowdown, continues to benefit from inventory building, as firms stock up to secure supplies before potential price increases.
Further increase in US inflation
Meanwhile, US inflation increased further in May, rising to 4% and marking its highest level in three years. The core personal consumption expenditure price (PCE) index rose 0.3% for the month, bringing the annual rate to 3.4%, the highest since October 2023.
Easing in gasoline prices is expected, but their impact on inflation could be offset by rising prices in technology goods. Goods’ prices inflation cooled, rising 0.4% compared to 0.7% in April, while food prices edged slightly higher by 0.1%. Gasoline and other energy goods surged up 6.5%, while the price of services jumped 0.5%, up from 0.3%, driven by higher transportation costs. The cost of financial services and insurance rose by 1.2%, reflecting a stock market rally, while healthcare and other services also recorded strong price increases.
UK PMI falls
Finally, UK PMI fell in June, signalling a marginal decline in output as the economy contracted for the second consecutive month. The UK composite PMI fell to 49.4 from 49.7 in May, remaining below the 50.0 no change mark. The decline in overall business activity was largely driven by the services sector, with the flash estimate falling to 48.7 from 49.3, marking its weakest levels in three years. This was mainly caused by rising costs and a drop in customer confidence, amid ongoing war-related concerns and political uncertainty within the UK.
Manufacturing output continued to expand; however, PMI fell to a three-month low of 53.1 in June, down from 53.9 in May. Although manufacturing output increased, this may prove temporary, as demand is being supported by firms building safety stocks ahead of potential price increases.
This article does not constitute legal and/or financial advice and is being issued for information purposes only by Bank of Valletta plc, 58, Zachary Street, Valletta. Bank of Valletta is a public limited company regulated by the MFSA and is licensed to carry out the business of banking and investment services in terms of the Banking Act (Cap. 371 of the Laws of Malta) and the Investment Services Act (Cap. 370 of the Laws of Malta).
