Euro Area: Growth to continue, despite a decline in PMIs – Danske Bank

In contrast to the strong data releases in previous months, June PMIs declined unexpectedly with the composite indicator falling to 50.8 from 52.5 in May, below expectations of 52.5,

Eurozone economy to continue growing

“Despite, the downtick, the composite PMI was significantly higher in Q2 compared to Q1, indicating that the economy also grew in Q2. Hence, we expect the economy to continue growing, driven by a strong services sector, resilient labour market and rising real incomes.”

“Headline inflation in June declined to 2.5% y/y from 2.6% y/y due to lower energy and food inflation, while core remained sticky at 2.9% y/y. Decomposing the print reveals a continued strong momentum in services inflation. Akin to the picture seen lately, underlying inflation momentum - especially services inflation - remains too high for the ECB's comfort.”

“In the French election, we believe the most probable outcome is that no party will gain an absolute majority, resulting in a 'hung parliament' and policy gridlock. Hence, France's public spending, which has been a centre of attention in recent weeks, is not set to rise markedly.”