In June, European corporate activity slows as higher interest rates take effect.

According to preliminary statistics released Friday, business activity growth in Europe slowed in June, pointing to a challenging conclusion to the second quarter.

The flash composite Purchasing Managers’ Index for the eurozone fell to 50.3 in June from 52.8 the previous month. This was lower than the 52.5 predicted by experts. A value above 50 indicates an increase in activity, whereas one below 50 indicates a decrease in activity.

“Eurozone business output growth came close to stalling in June, according to the latest HCOB flash PMI survey data produced by S&P Global, pointing to renewed weakness in the economy after the brief growth revival recorded in the spring,” S&P Global said in a statement.

“Although energy and supply chain concerns have eased since late last year, June has seen a further escalation of concerns about demand growth, particularly the impact of higher interest rates, and the resulting possibilities of recessions in both domestic and international markets.”

Chris Williamson, chief business economist at S&P Global Market Intelligence, told CNBC’s Street Signs Europe that the data were “worrying.”

“Higher interest rates, rising living costs are all beginning to take their toll,” he added.

For the past year, the European Central Bank has continuously raised interest rates in an effort to reduce inflation. greater rates, on the other hand, can lead to greater expenses for businesses across the EU and, as a result, are frequently a drag on production.

Data from Germany earlier in the day revealed a decline in Europe’s largest economy on a country-by-country basis. The flash composite PMI in Germany decreased to 50.8 in June from 53.9 in May. This fell short of market expectations.

“These data are consistent with our view that GDP (gross domestic product) growth in Germany will remain subdued in the second and third quarters after the economy registered a technical recession,” said Claus Vistesen, chief euro zone economist at Pantheon Macroeconomics, in a note to clients.

Germany entered a technical recession in the first quarter of this year, declining 0.3% in the previous three months. Germany’s GDP contracted by 0.5% in the fourth quarter of 2022.

In France, the composite PMI fell to 47.3 in June from 51.2 in May, significantly below the predicted 51. This was mostly attributable to the services sector’s weakness.

Following the release of the data, the yield on the 2-year German bund fell to 3.17% in early trade, while the yield on the 10-year benchmark fell to 2.36%. Bond rates tend to fall when the economy slows.

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