The Composite numbers came in at 45.9 against consensus estimates of 46.6, representing its lowest level since June 2009. When looking at the composite for the EU, France and Germany they feel it indicates that “activity in the periphery likely contracted at a faster pace compared with August.”
At a sector level, EU Manufacturing PMI came in at 46 against estimates of 45.4 and show that the improvement came mainly from the output component while the forward looking new orders index remained broadly unchanged at 43.6. The stronger than expected Manufacturing data did not offset the decline in the services PMI with fell to 46 against a consensus estimate of 47.5.
They note that France and Germany “showed significant divergence. In Germany, both the manufacturing and services sectors improved more than expected. However, all the forward-looking indicators, such as composite new orders (at 44.6 from 42.8), new exports (at 42.0 from 39.4) and business expectations (at 44.4, the lowest since October 2011) remained at very low levels and are consistent with contraction, signaling no imminent return to expansion.”
In France, “the PMIs in both sectors slumped. The composite output PMI therefore fell to a three-and-a-half-year low. Indeed, the weak print may reflect some payback effects from the decent rebound in August and/or France‟s holiday season effects, but the extremely low reading of manufacturing new orders is indeed worrying.” They believe that the PMIs suggest it will be hard for France to avoid a contraction in GDP in Q3.
Overall, during the coming months, Wang and Matthews cannot rule out a temporary increase in the PMIs as positive sentiment from the ECB’s OMT announcement may tale time to filter into the real economy.
However, they finish by saying that “we remain pessimistic on the growth outlook as the headwinds from fiscal consolidation and weakening global demand remain the main themes. Moreover, the further deterioration of the job market, with the euro area composite employment component declining to 46.3 - its lowest level in almost three years, suggests weaker domestic demand in the coming months.”