Allan von Mehren
Danske Bank A/S
Euro flash PMI weakened further in September: the composite new orders index slipped to the lowest level since August 2013. It fell to 51.2 in September from 52.4 in August.
The weakness was in particular driven by lower manufacturing PMI in Germany where the decline actually accelerated. German service PMI increased from 54.9 to 55.4 but the incoming business index was actually weaker. So, overall it was a fairly weak picture for Germany.
In France, there was a little light in the darkness as the manufacturing PMI increased with the new orders index rising to 47.4 from 44.2. It was the highest level since May this year. French service PMI weakened but it mainly reversed a decent increase last month. Overall, the service sector is still holding up OK.
The level of PMI new orders is broadly in line with our expectations of growth of around 1% q/q annualised in Q3. However, it puts some downside risk on Q4 growth.
The divergent picture in manufacturing is noteworthy and suggests that Germany has been hit the most by the uncertainty related to the Ukraine crisis. Germany is still very export-oriented and has taken the biggest hit recently.
Looking ahead, we expect stabilisation before a gradual recovery sets in at the end of the year. This should be driven by strong US growth and a significant weakening of the euro, which should gradually feed through to exports.
For the ECB, the data confirms the picture of painfully slow growth in a situation with high unemployment and very low inflation. The pressure for further easing will continue to be high for some time.
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