Euro area: June PMIs broadly stable with strong Germany but disappointing France

Euro area Composite PMI remained stable in June at 50.2, remaining above the threshold of 50 but falling slightly short of expectations (50.4). The Services PMI saw a slight increase to 50.0, a two-month high, from 49.7, as anticipated, while the Manufacturing PMI remained steady at 49.4 (see Chart 1 ). Today's figures do not indicate a negative impact from US tariffs at this time . E ncouraging signs from subcomponents The composition of the index is encouraging , with several subcomponents nearing their highest levels in over a year. New orders, although still below the threshold at 49.7, reached their highest level since May 2024 (see Chart 2 ). The Business Future Output index improved to 58.7, marking the strongest level since July 2024. The Employment index also rose to 50.2, the highest since June 2024. Additionally, the pace of input cost inflation eased for the fourth consecutive month, registering the weakest rate since last November. Germany up, France down German PMI data surprised to the upside , rising to 50.4 from 48.5 in May. Both the manufacturing and services components saw improvements, with readings of 49.0 and 49.4, respectively, compared to 48.3 and 47.1 in May. A ll leading indicators showed improvement and are now above the 50 thresholds , including Future Output and New Orders in the manufacturing sector, as well as business expectations in services. E xports in the manufacturing sector remained unchanged at 52 ( up from 45.8 in January), suggesting that US tariffs do not currently appear to be affecting German companies . Conversely, French PMIs fell short of expectations, with the composite index declining to 48.5 from 49.3 in May, indicating a broad-based contraction. This downturn was largely driven by the manufacturing sector, which dropped to 47.8 from 49.8, marking its first decline in production in three months alongside a sharp fall in new orders. Job cuts were also recorded. The Services PMI slightly decreased, landing at 48.7, down from 48.9. Key Data Points for the ECB: US Tariffs and Geopolitical Tensions With the composite PMI slightly above 50 once again, today's data suggests that the Euro Area economy experienced slight expansion in Q2. Our GDP model, based on composite PMIs, projects GDP growth of +0.1% in Q2, exceeding our official forecast of -0.2%. We anticipate a backlash effect following the frontloading of exports to the US in various countries (such as Ireland and Germany) during the first quarter. We believe this data will have limited implications for the ECB, as the primary concerns remain US tariffs and geopolitical tensions, including their potential consequences on exchange rates and rising oil prices. We expect a pause in July, followed by a final 25 bps rate cut in September.