Eurozone PMIs Soar Again

​The increase in the services PMI from 55.2 to 58 is telling us there is optimism about the reopening in the European economy. Demand is coming back and there is an expectation around easing further down the line. In fact, economies are recovering faster than expected as shown by the PMI numbers. 

The jump in eurozone PMI indicates strong growth in the second quarter with inflation pressures increasing further. The manufacturing PMI increased from 62.2 to 62.4 which is a small increment but at high levels. The numbers showed that lead times for inputs continued to improve for the Eurozone as a whole - this tells us that supply-side problems remain a bit of a drag on the recovery, although the manufacturing outlook looks good with strengthening order flows.

The Inflation Picture

Inflation pressures continued to build as expected with input prices surging in June - this was the strongest increase in selling prices ever measured in the survey which confirms the narrative  of increasing inflation for goods and services. However, headline inflation edged lower on energy prices in June, but goods and services inflation are set to continue their march higher. This will probably push inflation above 2% for the rest of the year.

Goods inflation is already taking off and has increased from 0.4% in April to 1.2% in June which is to be expected given that producers are passing on higher input costs to consumers. This is likely to continue for some time yet.

The headline inflation number decreased slightly in June but this isn't as important as the surge in goods and services inflation. Is this temporary? I don't have a crystal ball on this  but risks do appear to be to the upside.

Consumer Confidence Surges

In June, consumer confidence increased to -3.3, which is getting close to all-time highs and certainly well above pre-pandemic levels. This suggests that there is a lot of pent up consumer demand as the economies reopen and confirms the optimism in the recovery itself that will probably continue over the next few quarters. The Eurozone economy is building momemtum here. Consumers have saved up a fair chunk of money through the pandemic and consumers haven't been able to spend on a wide vareity of goods. In addition, the furlough schemes have kept unemployment at bay and incomes have been retained. Savings in the bank and pent up demand adds up to a spending spree and high demand which will fuel the recovery for many months.