Danske Research Team
Danske Bank A/S
The euro area PMI figures were slightly stronger than expected in August as the manufacturing PMI was unchanged at 52.4 while the service PMI increased to 54.3 from 54.0 in July.
The manufacturing PMI was supported by an increase in the German figure to 53.2 from 51.8 in July, which is the highest level since April last year. On the other hand, the French manufacturing PMI disappointed, declining to 48.6 from 49.6.
The increase in the service PMI was driven by improvements in the periphery countries as both the German and French service PMIs declined by 0.2 index points.
Looking at the details for the manufacturing PMI, there was an increase in the new orders index from 52.2 to 52.7 and also a rise in new export orders from 51.5 to 52.6. The higher new export orders suggest that the euro area economy has not been affected very much by the weakness in China.
The lower oil price also seems to have affected the manufacturing PMI as input prices declined to 49.7 from 54.4 whereas output prices rose a bit to 50.7 from 50.4. So far this is supporting gains in the manufacturing sector, but a spill-over to output prices would result in lower inflation.
For the service PMI, future business expectations have been on a down trend since March, but the lower oil price is likely to support the domestic-driven service sector and we expect the trend to reverse.
In Germany, the composite PMI new orders index rose to 53.0 from 51.8 in July. It bottomed at 51.1 in June which is a signal that German GDP growth will strengthen in Q3 after disappointing a bit in Q2. The weakness in Q2 was mostly due to low investments and higher inventories, while the higher manufacturing PMI in Q3 suggests the business sector will be more supportive of activity in Q3.
The French composite PMI new orders fell to 50.9 in August from 51.3 in July. This was the lowest level since January and suggests very modest GDP growth in Q3 in France. Overall, the French manufacturing PMIs suggest the French economy has not been much affected by the weakness in China, but domestic demand still needs to improve for more sustainable growth to materialise in France.
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