Euro Zone Services Sector Stabilizes as Input Costs Cool

The euro zone services sector continued to contract in June but at a slower pace, with the S&P Global Eurozone Services PMI Business Activity Index rising to 49.4 from 47.7 in May. This stabilization follows two months of decline and coincides with the steepest drop in input cost inflation since 1998, excluding the pandemic. In France, services activity remained in a downturn with a PMI of 46.8, although the decline in new orders and output was the slowest since March.

S&P Global reported that the broader Eurozone Composite PMI Output Index reached 50.0, signaling the wider economy has moved out of contraction as manufacturing growth offset the services decline. Economists attribute the easing inflationary pressures to cooling energy prices, which followed progress in ceasefire negotiations between the United States and Iran regarding the Strait of Hormuz.

This trend is expected to reduce pressure on the European Central Bank to implement further interest rate hikes. Stabilization of the economy follows a period where energy price spikes subdued consumer demand.