Europe’s Flash PMI Rebound, Economy Still Weak

The recovery in the euro area PMIs was mildly positive news; however, the details continue to be worrying. The economy is quite weak to generate significant inflation pressures, which means the ECB needs to do more. The euro area PMIs surprised positively for a change, at least on the headline level. The composite output PMI rose to 51.8 from 51.5, with both manufacturing and services PMI climbing.

However, the details show a slightly different picture. While the new orders index in manufacturing rose, at 45.9 it remains at a depressing level. In services, the forward-looking components dropped. In all, the PMIs are still indicating towards an economy that is growing modestly, but the growth rate is quite slow to help bring inflation towards the ECB’s target. This was also indicative in a further drop in the employment index, pointing to slower growth of job creation.

The French figures were a positive surprise, and imply the French economy is enjoying much better momentum compared to Germany at the moment. Today’s data will not do much to change the outlook for the near-term ECB action. An easing package from the ECB is still expected during the September meeting, said Nordea Bank in a research report.

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The flash headline German PMIs were slightly better than anticipated. The manufacturing PMI was able to recover to 43.6 from 43.2, while the services PMI retreated only slightly from 54.5 to a still rather good level of 54.4. The composite output index, in turn, rose to 51.4 from 50.9, still indicating towards modest growth.

Nevertheless, the details were gloomier. The new orders index for manufacturing edged yet lower and future business expectations index has dropped clearly below the activity index for services, indicating softer times are ahead. Also the employment components continued to fall, both in manufacturing as well as services.

The composite PMI continues to paint a less gloomy picture of the German economy compared to the Ifo. Taken together, the recent confidence data does not change the picture that German economy might continue contracting in the current quarter, which would put the German economy in a technical recession.


“The relationship between the French PMIs and the GDP has not been very good lately, but the PMIs support the picture that the French economy clearly remains in growth territory and is doing better than the German one. Such an outlook should also help keep President Macron on a reform path”, stated Nordea Bank.

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