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EMU CommentPMI stabilises in April

  1. PMI Composite surprised on the upside
  2. German and French service confidence rose
  3. Supports a steady ECB
PMI Composite surprised on the upside
The PMI Composite index was flat in April at 55.2. This was as we expected, whereas consensus expected a further fall. The PMI thus ended the rout from the past two months that lowered business sentiment to a 14-month low. This should bring some comfort, as concerns about an imminent slowdown in the eurozone economy have risen over the past month. The more stable development compares well with our view that the sentiment index was too high over the turn of the year relative to the actual economic development and also when comparing with other developed countries (especially within manufacturing). Increased financial market volatility and worries about a potential trade war seem to have been the triggers of an alignment of the sentiment index and actual growth data (see graph). Even though we expect “softer” hard data (retail sales and industrial production to translate into lower GDP growth in the first quarter), the PMI index at today’s levels still suggests solid growth ahead.
German and French service confidence rose
As we expected, the more positive development was found within the services sector, with the Service PMI increasing to 55.0 in April from 54.9 in March. This is supported by still elevated consumer confidence and unemployment falls picking up pace again. Meanwhile the Manufacturing sector still showed weakness with the PMI decreasing to 56.0 from the previous 56.6, but the pace of decline has moderated. Hence there are still signs that manufacturing is hurt by the strong EUR and probably to some extent still some worries over protectionist effects on trade. Elsewhere, the French Composite PMI rose slightly more (to 56.9) than the German (55.3), consolidating its outperformance. But the fact that both German and French PMIs rose tells us that weakness is to be found outside the core countries.
Supports a steady ECB
Additionally, the PMIs showed an increasing employment index, suggesting that even though the index has fallen in the previous three months, the overall trend could still be solid. Likewise, the output price index fell for a third month, but this could very well be only a temporary slowdown like we saw a year ago. Focus has turned to the ECB regarding whether the bank has become more worried about signs of slowing economic momentum. Today’s PMI report should support recent ECB comments (for instance from Draghi) that the growth momentum is expected to continue despite recent indicators suggesting that the growth cycle may have peaked. This supports our view that the ECB policy meeting on Thursday will probably contain limited new information vs. the previous meeting in March.

Source: Macrobond


Rasmus Gudum-Sessingø

Senior Economist


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