• Weak PMI figures this week have fueled discussions about the global recovery. We acknowledge the risks, but these are volatile times, and it is too early to jump to conclusions.

  • Next week, the M3 report stands out in Europe and should provide further evidence that the ECB's huge liquidity injection helped to prevent a credit crunch. And we stick to our view that it will restore investors' confidence and a proper monetary transmission mechanism rather than fueling inflation – as we argue in our first focus piece.

  • In a second note, we show that external vulnerability of CEE countries has decreased due to improved savings/ investment balances. But risks such as a crowding out of private investment by high public deficits did not evaporate.

  • Next week's US durable goods report should reduce fears of weak capex spending, which have been depressed so far by special factors. Higher investment activity is thus another factor supporting our view of faster growth ahead.


The Week in Retrospect

Weak Purchasing Managers Indices took center stage in an otherwise relatively light data week. After a volatile start to the year, with a strong gain in January followed by a (partial) correction last month, European PMIs flash readings disappointed again when unexpectedly dropping in March. While the services index moved sideways (hence failing to recover after the weather-related disruption in February), its manufacturing counterpart eased to 47.7 versus 49.0 the month before. The EMU-wide composite PMI therefore weakened six tenths of a point to 48.7 lowering the full-quarter average to just 49.5. This number poses only moderate downside risks to our forecast of flat GDP in 1Q12. However, and probably more importantly, the March PMI report is beginning to challenge our view of a moderate recovery in growth momentum already in the second quarter. For the remainder of this month, it will be important to see whether this unexpected weakness is confirmed by the EuroCOIN indicator – which is as reliable as the PMIs at tracking GDP growth – and national business surveys (particularly the German Ifo on Monday). Looking at country levels, the German manufacturing PMI slipped back into contraction territory, while the services index eased further to 51.8. In France, the manufacturing PMI dropped to 47.6 points, whereas the services counterpart held at 50.0. When comparing these country numbers with those of the eurozone as a whole, it seems that the monthly drop in the manufacturing PMI was more severe in core countries than in the EMU periphery.