This morning saw the release of the latest set of Markit Purchasing Managers’ Index (PMI) – a set of indicators used to measure the economic health of the manufacturing and service sectors. The figures for the eurozone as a whole once again beat expectations.
Eurozone Composite PMI (Aug A) M/M 51.7 vs. Exp. 50.9 (Prev. 50.5)
Eurozone Services PMI (Aug A) M/M 51.0 vs. Exp. 50.2 (Prev. 49.8)
Eurozone Manufacturing PMI (Aug A) M/M 51.3 vs. Exp. 50.8 (Prev. 50.3)
German Flash Composite PMI (Aug A) M/M 53.4 (Prev. 52.8)
German Services PMI (Aug) M/M 52.4 vs. Exp. 51.8 (Prev. 51.3)
German Flash Manufacturing PMI (Aug A) M/M 52.0 vs. Exp. 51.2 (Prev. 50.7)
French Composite PMI (Aug) M/M 47.9 (Prev. 49.1)
French Services PMI (Aug) M/M 47.7 vs. Exp. 49.2 (Prev. 48.6)
French Manufacturing PMI (Aug P) M/M 49.7 vs. Exp. 50.2 (Prev. 49.7)
We covered this issue in detail last month and, needless to say, our thoughts haven’t changed much in such a short space of time, but there are a couple of points to note.
- Again, this is another small positive piece of data for the eurozone, in particular the eurozone services PMI is at its highest point for 2 years while the manufacturing at its highest since June 2011.
- That said, the on-going problem of divergence (which we have discussed before) continues to loom large. As Germany continues to post strong economic data, France looks to be showing signs of struggling, despite its unexpectedly positive GDP growth in the second quarter of this year. This divergence has the potential to become a serious problem for both the ECB (in terms of trying to balance its monetary policy) but also for the Franco-German axis which has long been at the core of the eurozone and vital to its stability.
- This turnaround in economic data for the eurozone has unfortunately coincided with problems/issues elsewhere in the global economy. The Chinese economy (a big source of trade for the eurozone) has shown signs of stumbling, while the US Fed is toying with the prospect of tightening its monetary policy – this could impact global liquidity and sentiment with suitably negative knock-on effects for the eurozone. With Germany leading the way as an export orientated country and many in the periphery looking to copy this (through choice or Troika programme), the eurozone continues to be reliant on external demand.
- The combination of positive economic data and long term forecasts of loose ECB policy are helping boost sentiment in the eurozone more broadly. However, some significant questions are looming, notably how to fund the likes of Greece, Portugal and Ireland as their bailout funding winds down over the next year. These issues have so far been pushed into the long grass but the time is quickly approaching where answers are needed, unfortunately indicators here are much less positive than the PMIs. More ad-hoc structures seem to be the likely outcome.