Today’s release of euro area PMIs was slightly lower than expected, driven by a significant fall in the French figures. The euro area leading indicator is still bouncing around at the bottom and we believe it is likely that the current recession will reach into Q4.
French PMI data deteriorated sharply in both manufacturing and service, while the German figures improved markedly with the service component rising to above the boom-bust level.
The euro area continues to face strong headwinds. Nevertheless we expect PMIs to increase moderately over the coming months and the euro area to be out of the recession as we enter 2013.
Details and outlook
The composite PMI fell from 46.3 to 45.9 and signals GDP growth at around -0.2% q/q in line with our expectations. Today's disappointing data, including the forward-looking components suggests that it might be hard to get out of negative growth territory in Q4.
Euro area flash manufacturing PMI increased to 46.0 in September, from 45.5 in August. Service PMI fell from 47.5 to 46.0. Manufacturing PMI new orders fell slightly from 43.7 to 43.6 and export orders were also almost flat at 44.7 signalling a contraction in exports of around 3% q/q.
Our six-months forward model indicates that we should see some improvement in PMIs in the coming months but this will depend on whether the ECB and politicians decide not to disappoint. The order-inventory balance indicates that the October reading could be another minor decrease. Nevertheless, we expect PMIs to increase moderately over the coming months and the euro area to be out of the recession as we enter 2013.
Germany managed to avoid contraction in Q2 and today’s figures indicate that Germany is likely to show only a minor fall in GDP in Q3. It cannot be ruled out that the growth engine will avoid negative growth in Q3. German flash manufacturing PMI increased from 44.7 to 47.3 and service PMI rose from 48.3 to 50.6. New manufacturing orders increased from 42.5 to 44.4. Also export orders improved while stocks of finished goods declined, so the order-inventory balance is up as was also the case in August. The manufacturing employment index has increased to 50.2. Note that just two months ago the index was at 44.3. Overall, we see signs of a recovery emerging in Germany.
French flash manufacturing PMI fall sharply from 46.0 to 42.6, which is the lowest level since 2009. Also, service PMI plunged from 49.2 to 46.1. Subcomponents are better with manufacturing new orders up from 42.1 to 45.7 and export orders up from 45.2 to 48.3. France is in recessionary territory and although we can see signs of improvement ahead, the economy remains very fragile. The French housing market remains a concern.
See the charts on the following pages.