By Paul Hannon and Ed Frankl


French businesses reported a decline in new orders during June in response to uncertainty about the outcome of surprise legislative elections, acting as a drag on the eurozone's economic recovery.

S&P Global's composite Purchasing Managers Index for the eurozone, a measure of activity in its services and manufacturing sectors, fell to 50.8 in June from 52.2 in May. A reading above 50.0 points to an increase in activity, while a reading below that threshold points to a decline.

President Emmanuel Macron called the elections on June 10, responding to weak support for his party in elections to the European parliament. Opinion polls point to gains for both the far-right, euroskeptic National Rally party and the left-of-center New Popular Front, but it is unclear how either would work with the centrist Macron to govern.

Some businesses appear to have responded to the uncertainty by holding back on new, or canceling existing orders. S&P Global's survey of purchasing managers found that new orders fell in June at the fastest pace since January, with businesses citing the two-round election that kicks off June 30.

That decline in orders pushed activity further into contraction after a more modest decline in May, and indicated the eurozone's second largest economy might not make as large a contribution to the currency area's growth in the second quarter as it did in the first.

"The uncertainty of the upcoming elections has French businesses stalling and fearing tougher times," said Norman Liebke, an economist at Hamburg Commercial Bank.

Activity in Germany, the eurozone's largest member, slowed but continued to expand, according to S&P's surveys, which are closely watched by the European Central Bank.

Germany's economy is more reliant than many of its peers on manufacturing, and that has been hit by weak global demand as households prioritize spending on experiences they were denied during the lockdowns that accompanied the Covid-19 pandemic, as well as high interest rates. The surveys indicated that a contraction in factory activity deepened again in June, after signs of revival in May.

ECB policymakers will likely be concerned by signs that the eurozone's recovery might already be running out of steam. The central bank lowered its key interest rate on June 6, but indicated it is likely to move gradually with further cuts. However, that stance was based in part on a raised forecast for eurozone economic growth this year.

Inflation pressures eased, with businesses reporting that they increased their prices at the slowest pace in eight months, as the prices they paid for raw materials and other inputs rose more slowly.

The eurozone was not the only significant part of the global economy to see a slowdown in business activity in response to political uncertainty, according to the surveys.

Business activity in the U.K. also slowed as some purchasing decisions were postponed until after the July 4 general election, which opinion polls indicate will see a new party in government after 14 years of Conservative rule. The U.K.'s composite PMI fell to 51.7 in June from 53.0 in May.

Activity in Japan's private sector stalled despite a pickup in manufacturing as service providers reported difficulties finding needed staff. Australian activity slowed, but continued to grow as high interest rates crimped demand.

By contrast, activity in India gained fresh momentum, with both the services and manufacturing sectors picking up again after a May slowdown.


Write to Paul Hannon at paul.hannon@wsj.com


(END) Dow Jones Newswires

06-21-24 0508ET