Chris Williamson, Chief Economist at Markit said:
“The final PMI data for July confirm the message from the earlier flash estimate that the Eurozone continued to contract at a quarterly rate of approximately 0.6% in July, suggesting the region looks set for a second consecutive quarterly decline.
“With incoming new business falling at the fastest rate for three years and service sector companies becoming the gloomiest about the outlook since early-2009, there seems little prospect of any improvement soon.
- Activity falls markedly as a result of accelerated decline in new business
- 12-month outlook turns negative for first time in series history
- Rate of job shedding fastest for three months
Conditions across Italy’s service sector took a turn for the worse in July, as incoming new business fell at the fastest rate since March 2009. Activity and
employment both dropped as a result, and for the first time since the launch of the survey in January 1998 firms generally expected output to be lower in a year’s time than current levels. Another negative development for businesses was a slight rise input price inflation from June’s seven-month low.
Outstanding business at services firms was further reduced during the latest survey period, extending the current sequence of decline to 17 months. Moreover, the overall rate of depletion quickened to the fastest since September 2009. Weakness in new business inflows was the most frequently cited reason for lower backlogs.
Phil Smith, economist at Markit and author of the Italy Services PMI® said:
"July PMI data pointed to recession in Italy’s service sector deepening at the start of the third quarter. New business intakes fell at a sharp monthly rate that has been exceeded only four times over the series history, all of which occurred around the
height of the global financial crisis. Furthermore, data on expectations showed sentiment at a record low, and gave no impression of an impending recovery."
“Not only did July see a further deterioration on the demand front, but input cost inflation also picked up from June’s recent low. This placed greater pressure on service providers to reduce their overheads, with a solid and accelerated decrease in employment levels one outcome. At the same time, backlogs of work were still reduced at a marked pace, suggesting yet more scope for job cuts.”
Countries struggling to meet budget targets have responded by raising taxes. The result of that stupidity can easily be predicted in advance: economic activity will contract further, causing budget target shortfalls.
Yet, Spain is hiking taxes to appease the bureaucrats in Brussels.
In France, prime minister Francois Hollande is about to Wreck France With Economically Insane Proposal: "Make Layoffs So Expensive For Companies That It's Not Worth It"
I wrote that before socialists took over both houses in French parliament. Many suggested he would not follow through. Unfortunately he has. Please consider my July 16 post Peugeot Has 51% Chance of Debt Default; Hollande Says France Will Not Let Peugeot Lay Off Workers
Hollande is also raising taxes like mad and French businesses are likely to head to the UK and other places in response. Many wealthy have fled the country.Correct Approach
The correct approach is to reduce taxes and make it easier for businesses to fire workers. Logic dictates that if it's difficult or impossible to fire workers, businesses will not hire them in the first place.Ass-Backwards Eurozone Policies
Most countries in Europe now have ass-backwards policies in place. The silver lining in this mess is those ass-backwards policies will accelerate the breakup of the eurozone, and that is a good thing.
Mike "Mish" Shedlock