Euro zone private sector contraction eases in June but services stay weak, PMI shows

The Eurozone's private sector activity contracted for a third consecutive month in June, but at a slower pace, with a modest recovery in tourism and leisure demand.

Euro zone private sector activity shrank for a third straight month in ​June, though at a slower pace, as a modest recovery ​in tourism and leisure demand failed to fully ‌offset ​a sustained fall in new business, a survey showed on Tuesday. June's reading of the S&P Global Flash Eurozone Composite PMI rose to 49.5 from 48.5 in May, a three-month high. A number below ‌50.0 signals a contraction.

"The euro zone economy is showing enough resilience to just about stay out of recession," said Chris Williamson, chief business economist at S&P Global Market Intelligence. "The flash PMI registered only a slight drop in business activity in June, meaning the survey is indicative of ‌unchanged GDP over the second quarter." A Reuters poll published at the start of June predicted a 0.1% expansion of the economy this ‌quarter.

New orders fell for the fourth consecutive month in June but at a slower pace. A marginal recovery in manufacturing new orders was not enough to offset a continued decline in services demand. Most survey responses were collected before the U.S.-Iran ceasefire memorandum was signed on June 17.

The Flash Eurozone Services PMI edged up to ⁠48.9 from ​47.7 in May - a three-month high - but ⁠remained in contraction territory. Germany posted its sharpest drop in business activity in 18 months but France's rate of decline eased. The rest of the euro zone as ⁠a whole recorded modest output growth. Employment fell slightly in June although the private sector has now had six straight months without adding jobs. Services staffing ​nudged slightly higher but manufacturing payrolls continued to shrink.

On prices, input costs rose at their slowest pace since just before the ⁠outbreak of war in the Middle East in February, easing across both manufacturing and services. Output price inflation also slowed but by less than input costs. "Encouragingly, lower energy ⁠prices ​are already filtering through to businesses and rates of input cost and selling price inflation have moved lower in June as a result, hinting at a potential peaking of the recent price spike," Williamson added.

The European Central Bank hiked interest rates on June ⁠11 as a war-related energy cost surge pushed overall inflation over 3%, well in excess of the ECB's 2% target. The Flash Eurozone Manufacturing ⁠PMI dipped to 51.3 in ⁠June from 51.6 - a four-month low. Factory output continued to expand, supported by inventory building as clients sought to get ahead of potential future price rises and supply disruptions.

Business confidence improved for a second consecutive ‌month after hitting a ‌31-month low in April but sentiment remained relatively subdued overall.