Eurozone: Towards a stabilization of growth - Natixis

Jesus Castillo, Research Analyst at Natixis, notes that the Eurozone composite PMI remained almost stable on January 2017 at 54.3 and from the manufacturing sector side, it seems that once again Germany has driven the Eurozone expansion.

Key Quotes

“The stabilization of the Eurozone PMI observed in January suggests that the activity will gradually slowdown throughout the first quarter of the year.”

“The Eurozone composite PMI remained almost stable on January 2017 at 54.3, it means -0.1 point compared to December. The manufacturing PMI rose to 55.1 from 54.9 whereas the services sector survey has registered a small decrease by -0.1 point to 53.1.”

“At this stage, among the four-big Eurozone countries, only France and Germany figures are available. From the manufacturing sector side, it seems that once again Germany has driven the Eurozone expansion. The manufacturing index increased by 0.9 point from 55.6 to 56.5 whereas it declined in France (from 53.5 to 53.4) in January. In the services' activity the picture is slightly different. The two countries have progressed in the opposite direction. Services have improved by 1 point in France (to 53.9) and they have lost 1.1 point in Germany (53.2). As a consequence of the good behavior of services, in France the PMI composite index has reached a level not seen since June 2011 (54.9).”

“The stabilization of the Eurozone PMI observed in January suggests that the activity will gradually slowdown throughout the first quarter of the year. Indeed, unfavorable factors have started to effect demand. Particularly the acceleration of inflation expected in the course of the first months of the year should result in a deceleration of consumption and, as a consequence, in a reduction of the demand addressed to the manufacturing sector. Additionally, the major positive effects of the monetary expansion on interest rates have reached a threshold. Interest rates should not decline more.”

“Notwithstanding January developments the raw data available for October and November are suggesting that the acceleration of activity foreseen in PMI figures for the fourth quarter should be confirmed. Indeed, industrial output has grown by +1.9% y/y in October and November (from +1.2% in 3Q). Thus we expect that GDP in 4Q might reach at least a similar growth rate than in 3Q16 between 0.3% and 0.4% QoQ.”