The services sector and business activity across Europe is still growing, albeit moderately, according to data released Thursday by IHS Markit, underscoring continued economic growth in the Eurozone.
The Purchasing Managers’ Index (PMI) showed robust signs of growth with the Composite Index at 55.7 and the Services Business Activity Index at 55.4. A figure above 50 shows that the sector is expanding.
Businesses across Europe reported increases in business activity, new orders and employment.
The figure posted in July was a six-month low of 55.7 down from 56.3 in June and the earlier flash estimate of 55.8. Even with the moderate growth in July it is among the best registered over the past six years and continues Europe’s economic growth over the past four years.
Chris Williamson, chief business economist, at IHS Markit said, “The surveys indicated a slight cooling in the pace of growth in July, but this is still an encouragingly upbeat picture of business conditions.
"The elevated PMI reading puts the eurozone economy on course for another strong quarter, the data being historically consistent with a very respectable 0.6% quarterly increase in GDP."
Job growth spikes
Growth was registered across the region and across varied sectors. In both June and July, higher levels of output were registered in manufacturing and the services sector. However, manufacturing production outpaced service sector activity in July.
Ireland (57.0) and Spain (56.7) saw slower growth in July but had the strongest rate of expansion in combined manufacturing and service sector.
Italy (56.2), which has been growing for the last decade, achieved the quickest pace of growth while Germany (54.7) and France (55.6) saw a slowdown in business activity.
Buoyant manufacturing and service activity meant the trend of staff hiring although dampened in July was still the best seen in ten years with job growth improvement registered in Germany, Italy and Ireland slowing somewhat in France and Spain.
Retail sales record level across Europe
Other data added to the frame are booming retail sales in the Eurozone with consumer spending confidence driving up sales month on month by 5% in June.
Soaring sales in the context of increased jobs growth across the region points to a potential pick up in spending in the near term according to Bert Colijn, senior economist Eurozone at ING Bank.
The backdrop of a favourable environment has boosted retail sales to a 3.1% increase year on year in June, the strongest annual growth rate in about two years and the highest level of sales on record.
All product categories saw increased growth, particularly electrical goods and furniture.
Booming sales but guarded optimism
Colijn anticipates that, “The strong momentum for consumption is likely to continue in the months ahead. Even though consumer confidence is leveling off somewhat with a slight decline in July, it is still at unusually high levels.
“As price growth is expected to remain subdued for the months ahead and businesses are expecting a further acceleration of job growth, it seems that consumer spending continues to have upside potential in the months ahead.
"That in turn means that sound economic growth in the Eurozone will continue to be supported by the consumer.”
Could this be signs of a heated economy and therefore a prospect of interest rate rise?
Williamson suggests, “While all countries continued to see ongoing robust growth as we move into the second half of 2017, the overall slowing in the rate of expansion will add a note of caution to ECB policymaking, though the underlying message is likely to be one of guarded optimism about the outlook.”