According to the first estimate, euro zone manufacturing PMI fell unexpectedly in July. The headline index dropped from 45.1 to 44.1, while most had hoped for an improvement after the stabilization in June. Euro zone manufacturing PMI is now again at the lowest level since June 2009. National data show a significant worsening in manufacturing sentiment in both Germany (43.3 from 45.0) and France (43.6 from 45.2). Expectations for the coming months remain bleak as new orders weakened further in July, hitting the second-weakest level since May 2009. The breakdown suggests that weakness is mainly domestically based as export orders were slightly stronger. Euro zone services PMI, on the contrary, rose for a second straight month in July. Services PMI increased from 47.1 to 47.6, while the consensus was looking for a stabilization. Strength in the services sector was mainly based in France, where the index rebounded from 47.9 to 50.2, but according to Markit, this might be temporary, related to the elections.
In Germany on the contrary, the services PMI weakened marginally in July (from 49.9 to 49.7). The euro zone composite PMI stayed unchanged at 46.4 in July, in line with expectations. Overall however, the outcome is disappointing. Last month, there were some encouraging signs which raised hopes that the worst was behind us. The significant worsening in the cyclical manufacturing PMI indicates however that the downturn in manufacturing is still gaining pace at the start of the third quarter, while the improvement in the services sector might have been due to temporary factors (in France).