Allan von Mehren
Danske Bank A/S
The euro flash PMI was a bit of a mixed bag but overall still shows a declining trend in euro area growth.
The composite new orders index fell from 51.4 to 50.6, the weakest level since July last year and points to growth only slightly above zero. Both manufacturing and service orders declined, although service is still holding up fairly well.
Of some concern is a sharp deterioration in the order-inventory balance within euro manufacturing as the inventory index rose quite a lot to the highest level since 2008. It points to further weakness in manufacturing in the coming months as companies need to work off too high inventory levels.
There were a few small bright spots in the German flash PMI for the manufacturing sector as the overall PMI rose from 49.5 to 51.8. The new orders index also rose from 48.8 to 50.1. But it came after a big drop last month and overall the trend still seems to be down. The German service PMI incoming business fell for the second month in a row but the level is still decent.
In France, the flash PMI was not very uplifting. Service incoming business fell to the lowest level since August last year and manufacturing new orders slipped back again after showing a surprise rise last month.
Overall the PMI report continues to show downward momentum in euro area activity and a decline in the order-inventory ratio suggests this could continue in the short term. Looking into next year, we expect some improvement during Q1 as consumer demand is still decent and companies benefit from a weaker euro and robust growth in the US. Thawing of bank lending as we get past the bank stress tests and ECB ABS purchases frees up space in banks’ balance sheets.
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