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EMU CommentFinally an increase in PMI

  1. First increase in PMI in six months
  2. Service sector recovers, but German manufactures even more downbeat
  3. Somewhat comforting for the ECB
First increase in PMI in six months
After five months of persistent declines in the eurozone Composite PMI index the index finally increased in February. The increase to 51.4 from previous 51.0 was a notch bigger than consensus estimates. Hence, it seems that the decline in sentiment has stopped for now probably helped by lessening worries about trade conflict and politics in Italy and France and not least due to the more dovish policy signals from global central banks which has supported stock markets. As expected the increase was due to improving service sentiment, while the Manufacturing PMI fell below the 50-threshold for the first time since 2013. While the increase was good news it is probably pre-emptive to expect real GDP growth to improve already in Q1 (see graph below). But we do see scope for a somewhat improving growth over the next couple of quarters.
Service sector recovers, but German manufactures even more downbeat
On the national level French Composite PMI increased nicely to 49.9 in February and just missed returning to expansionary territory. Especially Service PMI increased, probably reflecting lessening worries over the Yellow Vests protests. In Germany the increase in the Composite PMI was less pronounced (rose to 52.7 from previous 52.1). Here Service sentiment improved nicely, while the Manufacturing troubles just grew worse with the PMI continuing the rapid descend from January taking it to an underwhelming 47.6 and the lowest reading since 2012. Additionally, the Manufacturing orders index collapsed (to 42.6) with a significant decline in export orders. So there is still no signs of the pain for German manufactures lessening any time soon.
Somewhat comforting for the ECB
Today’s PMI data were welcome news for the ECB, which also has been backtracking on its too optimistic economic outlook. But the numbers does not alter the fact, that the ECB is bound to lower its economic projections at the next policy meeting in March, and probably is required to supplement this with a change in its forward guidance on its key rates.

Source: Macrobond


Rasmus Gudum-Sessingø

Senior Economist


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