European business activity slows in June as higher interest rates begin to bite

Business activity growth in Europe slowed in June, pointing to a difficult end to the second quarter, according to preliminary data Friday.

The euro zone’s flash composite Purchasing Managers’ Index dropped to 50.3 in June from 52.8 the previous month. This was below the 52.5 expected by analysts. A reading above 50 marks an expansion in activity, while one below 50 marks a contraction.

“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 release.

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

Earlier data from Germany also showed a slowdown in Europe’s largest economy. The German flash composite PMIs fell to 50.8 in June from 53.9 in May. This was below market expectations.

It was a similar story in France, where the composite PMI sunk to 47.3 from 51.2 in May, well below the 51 expected.

Euro zone bond yields dropped following the German and French data releases. An economic slowdown tends to be negative for bond yields. The yield on the 2-year German bund dropped 6.5 basis points to 3.21%.

This is a breaking news story and it is being updated.