Euro PMIs declined again in November

The euro flash PMIs continued lower in November, still showing a declining trend in euro-area activity. The composite PMI new orders declined to 49.9 and went below 50 for the first time since June 2013.

Interestingly, the euro PMI manufacturing only declined to 50.2 in November from 50.4 in October, whereas the German manufacturing PMI declined 1.4 index points and the French one was 0.9 index points lower. This suggests an increase in the manufacturing PMIs in the periphery countries of around 1.2 index point in each country.

For the euro area there was some rebound in the order-inventory balance, which weakened significantly in October. It has not fully recovered, hence it still suggests more weakness in manufacturing PMI, as companies still need to work off high inventories.

The service PMI also continued its downward trend and is no longer as resilient to the weakness in the manufacturing sector as it was in the first half of 2014. However, the details showed that future business expectations increased in November.

In Germany the manufacturing PMI declined to 50.0 from 51.4, mainly due to foreign demand as new export orders weakened more than new orders. Some of the decline was also the result of lower stocks of finished goods and the order-inventory balance rebounded and no longer suggests weaker German manufacturing PMI.

For Germany this is positive and we could see a turnaround in the manufacturing PMI in coming months as suggested by the ZEW expectations. The ZEW expectations are actually a good leading indicator for the Ifo expectations, although many do not like it.

German service PMI was also weaker as it declined to 52.1 from 54.4. The details are a bit better than the headline, as future business expectations increased to 52.5 from 50.2 after having declined from 58.7 in July. However, incoming new business declined for a second month in a row.

In France the manufacturing PMI declined for a second month in a row to 47.6 in November from 48.5 in October. The weakness was driven by domestic demand, as the new orders index declined while the new export orders index increased. The decline in new orders resulted in a deterioration of the order-inventory balance, which suggests further weakness in the French manufacturing PMI.

The French service PMI increased to 48.8 in November from 48.3 in October. It was driven by higher future business expectations, whereas the new business index declined.

In 2015 we look for stabilisation in euro-area activity before the recovery should gain further momentum, as headwinds from credit tightening are fading. Private consumption is still doing well, supported by higher wage growth. This should eventually have a positive effect on companies, which is also supported by the weaker euro.