Eurozone – Industry PMIs point to continued growth of production in 2Q15

Eurozone – Industry PMI survey data for May confirms our expectation of stable GDP growth for 2Q15

This week, flash estimates of Industry PMI for May were published. For the entire Eurozone, the average value for April and May has slightly improved to above the level seen in 1Q15 and points towards further rising Eurozone industrial production for 2Q15. Thanks to an improved export performance (supported by a low euro exchange rate level), Eurozone industry booked the highest growth in new orders for over a year. This indicates continued positive dynamics of industry for June. In addition, further increases of purchasing prices (driven by a higher oil price, rising wages and an increase of import prices) are sending a clear signal on further increases in the rate of inflation (latest value 0.0%). Employment rising at the fastest pace since May 2011 confirms the positive trend of the Eurozone labor market, where unemployment (latest value 11.3%) is declining continuously.

For Germany, the current average value of Industry PMI for 2Q15 is stable in comparison to 1Q15 and indicates a stable level of industrial production. In the last few quarters, however, the ifo index has been a better indicator of the German economy. The currently available data from the ifo index allows for a more optimistic evaluation of the German economy in 2Q15. Regarding France, the current survey data should also indicate stagnating industrial activity for 2Q15. Nevertheless, in 1Q15, France’s industrial production rose 1.5% q/q, despite weak survey data. We think that this trend might continue in 2Q15. In light of the muted survey data from Germany and France, the remaining countries of the Eurozone are responsible for the continued upswing in the data. On average, this week’s published data confirms our expectations of a continued stable growth pace of the Eurozone economy in 2Q15 (around 0.3-0.4% q/q). As already mentioned last week, the next step for the Eurozone recovery will be a pickup of the thus-far disappointing investment activity. A strengthened banking sector (thanks to the positive finalized banking review), supplemented by supportive measures from the ECB (especially QE), increases the likelihood that we might already witness increased investment activity in the second half of this year.