Eurozone PMI hits 4-year High in June

Eurozone business activity hit a four-year high in June and retail sales climbed further, pointing to sturdy economic growth in the second quarter and beyond despite the potential threat to business confidence from Greece’s unresolved financial crisis.

Markit data firm on Friday raised its composite purchasing managers index for the eurozone–a measure of activity in manufacturing and services–to 54.2 in June from a preliminary estimate of 54.1, thanks to faster manufacturing output growth. A reading below 50 indicates activity is declining, while a reading above that level indicates it is increasing.

“We see good momentum building in the eurozone and we could easily achieve at least 1.5% growth this year, assuming that the Greek crisis doesn’t intensify and lead to contagion across the region,” said Markit’s chief economist Chris Williamson.

This bullish outlook is just the latest sign of optimism about eurozone growth, contrasting with continued uncertainty about Greece’s future. Momentum in Greece’s referendum appears to be shifting toward a “yes” vote on creditors’ demands, an opinion poll published on Friday says, though the gap between the two camps is minimal–suggesting Sunday’s outcome hangs in the balance.

Standard & Poor’s Ratings Services raised its growth forecasts for the eurozone on Wednesday, up to 1.6% in 2015 and 1.9% in 2016, up from 1.5% and 1.7% projected in March, citing stronger consumer demand. By comparison, eurozone gross domestic product expanded 0.9% in 2014.

The improvement in services-sector activity in the 19 countries sharing the euro was the fastest since May 2011, as business quickened in Germany, France and Italy, Markit said. Its services PMI for the region rose to 54.4 in June from 53.8 in May, in line with a flash estimate.

“The eurozone’s cyclical upturn is currently holding up despite the Greek crisis and the reduced stimulus resulting from the firming in the euro, oil prices and bond yields from their early-2015 lows,” said Howard Archer, chief economist at IHS Global Insight.

Greece’s referendum on Sunday will ask the nation to vote “yes” or “no” to a set of economic-policy demands that the rest of the eurozone and the International Monetary Fund were insisting upon in Brussels negotiations last week as the condition for prolonging Greece’s bailout program.

Further improvement in economic output could still be limited in a number of countries because of “relatively poor competitiveness” and severe structural problems, Mr. Archer said.

For now, consumer confidence is underpinning the economic bounce in the region. Eurozone retail sales climbed further in May, supported by a gradually improving labor market and low inflation.

Eurozone retail sales in May rose 0.2% from April and were up 2.4% from May last year, slightly beating consensus forecasts for a 0.1% monthly gain, data from the European Union’s statistics agency showed.

Sales volumes in Germany jumped 4.2% from May last year and rose 3.4% in Spain, indicating that private consumption will remain a key growth driver. Eurostat didn’t provide Greek retail sales data for May, but volumes slumped 1.9% in April from the year-earlier period.

Source: MarketWatch