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EMU CommentPMI dragged down by French unrest

  1. Deteriorating sentiment gained strength
  2. PMI dragged down by French unrest
  3. Adds to ECB’s downside risks
Deteriorating sentiment gained strength
The December flash Composite PMI decreased more than expected in December to 51.3 from previous 52.7. The declining trend thus strengthened in December and brought the sentiment to the lowest level since July 2013. The drop was likely especially influenced by the recent French unrest. Hence, it remains to be seen to what extent the weakness in sentiment spills over to actual activity data as the PMI has been high relative to actual growth the past year (first graph). For now the PMI suggests that growth will tick in around 0.3 - 0.4 percent q-o-q in the fourth quarter.
PMI dragged down by French unrest
Today’s soft PMI data were probably especially influenced by the “yellow vests” protests as French Composite PMI collapsed in December(second graph), as the biggest monthly decrease since 2011 took the index below the 50-treshhold (49.6), and thus indicated contraction for the first time since February 2016. Especially the service PMI in France was hard hit as one might had expected. Meanwhile, the German PMI was more stable and only decreased slightly to 52.2 in December from previous 52.3 probably helped by retail and construction sentiment as both services and manufacturing saw larger declines.
Adds to ECB’s downside risks
Today’s PMI’s did nothing to alleviate the recent sense of weakness in economic data, which was also recognised by the ECB at yesterday’s policy meeting. Also be aware that the eurozone Composite PMI sub-indices for employment and output prices also fell another month to a two-year and one-year low respectively. Although, the PMI disappointment might (also) be a temporary weakness related to France, the temporary negative factors seems to be queuing up these days, and at one point it might well to recognised these are having a more permanent effect on actual growth potential. So for now the risks to the downside gained further support.

Source: Macrobond


Source: Macrobond


Rasmus Gudum-Sessingø

Senior Economist


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