Economic prospects are slightly improving. The Composite PMI for activity, a good track of GDP growth, rose to 47.3 in December. The survey showed that Germany is by far outperforming its peers. While the outlook for Q4 remains anything but buoyant, activity may start to recover throughout 2013.
Economic prospects are slightly improving. This is the main message coming out from the December PMI flash estimates released this morning. The Composite PMI for activity, a good track of GDP growth, rose to 47.3, up by almost 1 point with respect to November, reaching its highest level in nine months. The improvement came mainly from the services sector (up by more than one point), while the output index in the manufacturing was stable.
Germany is by far outperforming its peers. While the pace of contraction just eased in France and in the peripheral countries, Germany came back to growth, according to the survey, with the index back above the 50-threshold separating expansion from contraction for the first time in eight months. Given its weight as a trade partner, better economic prospects for Germany, should spread to the rest of the eurozone, brightening its outlook.
Todays’ data might signal that the worst of the recession could be behind us. While confidence indicator may have entered an upward trend, suggesting a recovery in 2013, conditions for the last quarter of the year remain difficult. The Composite PMI for activity averaged 46.5 in Q4, down marginally from Q3 average. Therefore, the pace of contraction of GDP might accelerate in the last quarter of the year. Available hard data for Q4 confirm this scenario. Industrial production fell by 1.4% m/m in October after falling sharply in the previous month. Although improving, survey data for the manufacturing sector for November and December just signal a moderation of the pace of contraction. On a quarterly basis, industrial production might fall by more than 2% in Q4 (assuming zero growth in November and December, industrial production is expected to contract by 2.6% q/q) while it rose by 0.4% q/q in Q3.
All in all, while the output for Q4 remains gloomy, survey data picture a brighter output for next year. Domestic demand will continue to suffer from the adjustment measures undertaken by several countries. Nevertheless, the eurozone will benefit from easier financial and monetary conditions which should progressively filter through the economy. However, do not expect a sharp rebound in activity. As it is always the case when the economy emerges from financial crisis, the recovery is likely to be very gradual and mild.