Eurozone business activity contracted in July as customers stayed home

LONDON—Business activity in the eurozone contracted slightly in July for the first time since early last year as consumers curtailed spending amid a cost-of-living crisis, according to surveys suggesting a bleak economic outlook.

S&P Global’s final Composite Purchasing Managers Index (PMI) is seen as a good indicator of economic health, dropping to a 17-month low of 49.9 in July from 52.0 in June. It has fallen, but is above our preliminary estimate of 49.4. Less than 50 indicates shrinkage.

Chris Williamson, chief business economist at S&P Global, said: “The latest survey data suggests a contraction in GDP in July, and the economic outlook for the eurozone has darkened at the start of the third quarter.

“Surging inflation, rising interest rates and supply insecurity, especially for energy, have led to the biggest drop in production and demand seen in almost a decade, outside of the pandemic lockdown period.”

Prices have eased but are still surging, with the new business index falling from 50.0 to 47.6, its lowest level since November 2020.

The PMI covering the block’s dominant services industry fell to 51.2 from 53.0, which was above the flash estimate of 50.6. The reading came after Monday’s sister survey showed factory activity in the block contracted in July.

Demand for services fell as customers stayed home and businesses became less optimistic. The Business Expectations Index fell from 58.5 to 56.8. This is his lowest since October 2020, when the region was in the depths of the coronavirus pandemic.

“Households are becoming increasingly concerned about rising costs of living, hindering the expected surge in consumer spending after the easing of pandemic restrictions,” Williamson said. It means spending is diverted to essentials.

“At the same time, amid a more pessimistic economic outlook, increased caution and increased risk aversion are restraining business spending.”