Euro area services PMI jumps past forecasts, but economists remain wary

Andrew Cummings
July 3, 2020

In terms of index reading, the IHS Markit India Services Business Activity Index recorded 33.7 in June from May's unprecedented low of 12.6, but remained below the neutral 50 mark for a fourth successive month, signalling another decline in service sector output.

Caixin's composite manufacturing and services PMI, also released on Wednesday, picked up to 55.7 in June from 54.5 in May.

"Since mid-March, China's economy has staged an impressive comeback, bolstered by pent-up demand, a catch-up in production, a surge in medical product exports and stimulus in both China and other major economies that has bolstered demand for goods made in China", economists at Nomura International (Hong Kong) Ltd. wrote in a note on Monday.

Employment across the Indian services sector fell during June. Although the rate of deflation eased considerably, it was historically marked.

Last month, levels of new work coming into the sector fell at the slowest rate since lockdown started in March and businesses reporting a drop in new orders mostly attributed this to "cautious" business and consumer spending. The transport, tourism and leisure sector again registered the steepest rate of contraction, followed by financial services and business services respectively.

A composite PMI, which includes manufacturing and services, also pointed to a deep contraction in Asia's third-largest economy, which a Reuters poll said shrank 5.2 percent last quarter. But, a number of firms their costs had increased amid purchases of PPE.

The Services PMI had peaked at a two-year high of 59.9 in February.

"A cessation in some lockdown policies enabled the services sector to emerge tentatively from the shadows last month and reclaim some normality", said Duncan Brock of the Chartered Institute of Procurement and Supply.

Following today's improved data from IHS Markit, Howard Archer, chief economist at the EY Item Club, issued a note of caution.

The services sectors in France and Spain returned to growth in June, while those of Germany and Italy saw much smaller declines in activity than in recent months, according to surveys of purchasing managers published Friday.

'Nevertheless, it is evident that the United Kingdom economy suffered a record, substantial GDP contraction in the second quarter. They raised their estimate for year-on-year GDP growth for the second quarter this year to 2.6%, up from 1.2%. This assumes a further easing of lockdown restrictions, including a relaxation of social distancing rules. We do not allow any commercial relationship to affect our editorial independence.

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