Eurozone July PMI slightly rebounded to a four-month high but still failed to hide the economic growth slump.

The data released on Tuesday showed that although the growth rate of commercial activities in the Eurozone in July was slightly higher than in June, the overall situation remained sluggish. The HCOB Eurozone Composite PMI index compiled by S&P Global rose slightly from 50.6 in June to 50.9 in July, slightly below the market expectation of 51.0. While the index hit a four-month high in July, it still remained below the long-term average of 52.4, reflecting the persistent economic weakness in the Eurozone. The growth rate of service activities slightly improved, with the Eurozone Services PMI rising from 50.5 in June to 51.0 in July, but still slightly below the market expectation of 51.2. Additionally, overall new orders remained almost unchanged, continuing the trend from June. Export sales continued to decline for the 41st consecutive month, dragging down growth. The Composite New Business Index rose slightly from 49.7 to 49.8. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, said: "This summer may be a good season for service providers. In Italy and Spain, the growth rate of commercial activities in July exceeded that of the previous month, while Germany, after facing challenging months, has re-entered the growth range." Among the major economies in the Eurozone, Spain's Composite PMI rose from 52.1 in June to 54.7 in July, showing the strongest performance; Italy's Composite PMI rose from 51.1 in June to 51.5 in July, and Germany's Composite PMI rose from 50.4 in June to 50.6 in July, all achieving moderate growth. France was the only major Eurozone economy to show contraction, with a Composite PMI of 48.6 in July, lower than June's 49.2, marking the 11th consecutive month of decline. Despite weak demand, Eurozone businesses increased employment for the fifth consecutive month in July. The pace of employment growth remains modest but has reached the fastest level in over a year. However, business confidence saw its first decline since April in July, with optimism weakening in both manufacturing and service sectors, leading to an overall confidence level below the long-term average. Cost pressures fell to their lowest level since October last year, driven mainly by the services sector. Output price inflation increased slightly, reaching a three-month high. The services input price index fell from 58.1 to 56.5. Cyrus de la Rubia added: "Inflation in the Eurozone services sector is easing, increasing the possibility of further interest rate cuts by the European Central Bank in the second half of this year." Data released last week showed that Eurozone consumer prices (CPI) rose by 2% year-on-year in July, in line with the previous month, while economists surveyed had expected a slowdown in July CPI to 1.9%. The core CPI, which excludes volatile energy and food prices, rose by 2.3% year-on-year, while the service inflation, of particular interest, reached its lowest level since early 2022. However, as inflation remains near the target and the economy has so far resisted pressure from U.S. tariffs, many officials have stated that there are insufficient reasons for the European Central Bank to continue its accommodative policy. Barclays also believes that the European Central Bank may choose to cut interest rates in December instead of the previously forecast September rate cut. The bank's economists suggested that this adjustment takes into account the weak economic activity in the second half of the year, attributed to the continued drag from trade policies and the impact of earlier import surges by the U.S. By December, the signals about the trade headwinds are expected to be clearer, and concerns about interruptions in the supply chain affecting inflation will likely diminish. It is worth mentioning that following the recent trade agreement between the EU and the U.S., some analysts have pointed out that the EU will face high tariffs on most of its exports to the U.S., while increased EU investment and energy procurement from the U.S. will weaken its industrial competitiveness and lead to job losses, restricting economic growth and potentially hindering the fragile economic recovery in the Eurozone. Several economists have pointed out that the new U.S.-EU trade agreement will not only drag down European exports and economic growth in the short term, but tariffs will also increase the risk of outflow of key domestic industries such as manufacturing and pharmaceuticals. If the economic growth prospects in the Eurozone weaken, the European Central Bank may not rule out another rate cut.