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EMU CommentPMI keeps surprising on the positive side

  1. Activity finishes 2017 on a stronger note
  2. Manufacturing softness transitory
  3. Supports higher ECB forecasts
Activity finishes 2017 on a stronger note
The composite PMI unexpectedly rose for another month and reached a fresh high of 58.0 in December, up from 57.5 in November. The moderation we saw in the Sentix barometer in December was, therefore, not repeated in the PMI. The Sentix barometer was probably more influenced by the increase in market volatility visible since mid-November. The strong PMI reading bolsters the case for GDP growth to increase to 0.8 percent q-o-q in Q4 from an already robust 0.6 percent in Q3.
Manufacturing softness transitory
We saw increases in both the service and manufacturing PMIs in December, with the latter proving a bit stronger. At a country level, composite PMI rose in Germany (to 58.7), while it decreased a bit in France to a still strong 60.0, due to less robust service confidence. Meanwhile, manufacturing confidence rose in both countries, again signalling that the weakness that we have experienced within manufacturing production in recent months will be transitory.
Supports higher ECB forecasts
Even though the PMI readings for output prices and employment decreased a notch in December, they remained high enough to suggest further progress toward gradually higher inflation (see graph) and a more robust labour market. With today’s main focus on the policy meeting at the ECB this afternoon, the numbers do little to change the view that the ECB probably wants to appear as neutral as possible after its “action” at its previous meeting in October. The PMI does confirm that higher ECB forecasts for GDP growth and inflation are warranted, at least in the short term. Then the question is whether ECB president Draghi will try to counterbalance this through dovish language.

Source: Macrobond


Rasmus Gudum-Sessingø

Senior Economist


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