Euro Zone: PMIs signal decelerating but positive growth in August

In the Eurozone, the composite output PMI fell to 52.8, a level consistent with GDP growth well above zero recorded in Q2 though. The surveys suggest that the deceleration in activity was widespread, but significantly larger in industry. In that sector, affected by geopolitical tensions and sanctions against Russia, output may be hardly increasing.

Last week, the publication of GDP data for the second quarter of 2014 disappointed widely, especially in the largest countries of the Eurozone (see Eco-Flash 14-188, Stagnation and deflation risk, 14th August). On a quarterly basis, GDP stagnated in the Eurozone as a whole and in France (for the second consecutive quarter in the latter), and slightly decreased in Italy and in Germany. Today, the releases of Purchasing Managers’ surveys conducted in August send mixed signals regarding the evolution of activity in Q3.
In the Eurozone, the composite output PMI index lost in August the whole point it gained in July. It fell to 52.8, a level consistent with GDP growth well above zero recorded in Q2 though, around 0.3% q/q according to Markit. The surveys suggest that the deceleration in activity was widespread, but significantly larger in industry than in services. In the latter, the business activity index fell by less than a point and remained at a still comfortable level of 53.5. In the manufacturing sector, however, the output index, after stabilizing in July, started again to lose substantial ground. It fell by almost two points in August, and, at 50.9, suggests output is hardly increasing in that sector.
In Germany especially, manufacturing activity and business climate is likely to be badly hit by increasing geopolitical tensions, and especially by sanctions against Russia. The manufacturing output index fell to a 14-month low, indicating that activity is rapidly losing momentum. The composite index however remained strong, well above the Eurozone average, at 54.9, meaning, that, despite the sharp deceleration observed in Q2 (y-o-y GDP growth fell from 2.2% in Q1 to 1.3%), the country still remains the first engine of Eurozone activity.
In France, the survey surprised to the upside with some increase in activity in services that drove the composite output index up to 50.0 after being below that level during the last 4 months. According to the survey, activity is still contracting in industry however.
Lastly, comparing French and German data with the Eurozone average suggests that composite indices decreased in other Eurozone countries and, among them, most probably in Italy (data to be released in the first days of September). According to Markit, the pace of output expansion in nations outside the big-two eased to its weakest level since the start of the year.

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