German and Eurozone manufacturing PMI data improve expectations in July but remain in contraction territory

He Germany’s HCOB manufacturing PMI fell three-tenths of a point in July, dropping to 43.2 points from 43.5 in June, its lowest level in three months. Despite the decline and having been in contraction territory for 27 consecutive months, the indicator has improved on expectations that predicted a fall to 42.6.

Commenting on the PMI data, Dr Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, said: “German industry has had a difficult start to the second half of the year. Manufacturing output continued to fall in July and shows no signs of slowing down. At the same time, companies are stepping up their staff cuts, with clearly little hope of improvement. A look at order intake supports their concerns. Orders fell at the fastest pace in three months, continuing a persistent decline since spring 2022. Unsurprisingly, confidence in this sector has taken a hit. A recovery in manufacturing is unlikely to come before autumn.

In the Eurozone, the manufacturing PMI remained at 45.8 points in July, two-tenths higher than the 45.6 estimated. The indicator has been contracting for 25 consecutive months. Dr. Cyrus de la Rubia points out that: “The widespread belief that the Eurozone recovery would gain momentum in the second half of the year is not being real. At the beginning of this year, it seemed that the sector could gradually emerge from the production slump in which it had been mired for months, but the doubts that arose in June have been intensified by an accelerated decline in production in July. Given these weak data, we will probably have to reduce our GDP growth forecast for the year from 0.8%.”

Euro reaction

The EUR/USD has fallen following the release of the PMIs from France and Spain, which have come in below expectations. The pair has fallen to one-month lows at 1.0781and is currently trading at 1.0785, losing 0.37% daily.