Eurozone Manufacturing Contracts Amid Global Slowdown, ECB Eyes Stimulus Measures
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Eurozone manufacturing activity shrank for the second consecutive month in June, highlighting persistent headwinds from slowing global demand and supply chain disruptions.
The IHS Markit Manufacturing Purchasing Managers’ Index (PMI) fell to 48.1 in June, down from 49.3 in May, signaling contraction as any reading below 50 indicates a decline. Analysts pointed to weaker orders from Asia and the United States, along with rising production costs, as key factors dragging on growth.
Germany and Italy, the bloc’s largest manufacturing hubs, saw the steepest declines, with companies reporting lower new orders and delayed deliveries. The slowdown adds pressure on the European Central Bank (ECB), which has been balancing inflation control with efforts to support growth.
“Manufacturers are feeling the pinch from both external demand weakness and lingering supply chain issues,” said Julian Wagner, chief European economist at Northgate Analytics. “This could force the ECB to reconsider further rate hikes and possibly introduce targeted stimulus in the coming months.”
Despite contraction in manufacturing, the services sector showed modest expansion, though at a slower pace, helping to keep overall economic growth positive. Consumer spending remains relatively resilient, supported by improving labor markets in several member states.
In response to recent data, ECB officials have reiterated their commitment to a “data-dependent” policy approach, with some signaling openness to adjusting monetary tightening if growth falters.
Markets reacted cautiously, with the Euro Stoxx 50 index falling 0.6% following the PMI release. The euro weakened slightly against the dollar, trading near 1.062 amid growing concerns about the eurozone’s growth outlook.
Bond markets also reflected investor uncertainty, with yields on 10-year German bunds slipping to 2.28%, as demand for safer assets increased.
Looking ahead, economists will closely watch upcoming inflation reports and ECB communications for clues on policy direction. The delicate balance between taming inflation and supporting growth remains a key challenge for the eurozone’s economic recovery.
