ab22 February 2024Global Research and Evidence LabEuropean Economic CommentEuropean PMIs: Better, but Germany still a dragEurozone PMI up, thanks to services; manufacturing decline continues The Eurozone Composite PMI (survey period 12-20 February) rose by 1 point to an 8-month high of 48.9, while staying below the neutral level of 50 for the ninth consecutive month. The key feature of today's PMIs are the pronounced differences across sectors and countries. Encouragingly, the Services PMI rose 1.6 points to a 7-month high of 50, suggesting that the sector might have stopped contracting. However, the Manufacturing PMI fell by 0.5 points to 46.6, particularly dragged down by very weak manufacturing in Germany, which remained the regional underperformer. French PMIs were a bit better (but still below 50), while the rest of the Eurozone saw positive growth for the second consecutive month. Aggregate new (export) orders remained sluggish and backlogs of work continued to ease. Nevertheless, aggregate employment rose (thanks to services) and the 1-year business outlook continued to improve, to a 10-month high. Although supply-chain disruption due to Red Sea tensions eased, input and output price inflation rose in February. Today's PMIs bring the January-February average Composite PMI to 48.4, above the average of 47.2 in Q4-23, when real GDP stagnated (0.0% q/q). As such, the PMIs provide an unreliable signal as to whether real GDP actually contracted (<50) or grew (>50). Our own forecast is a Q1-24 GDP GDP growth rate of 0.2% q/q, but with the risk skewed to the downside. Yet, despite the ongoing sub-50 PMI readings, we think ongoing labour market resilience and the recovery in real wage growth should help to avert outright GDP contraction. Country detail: Germany dragged down by manufacturing, France up stronglyThe German Composite PMI fell 0.9 points to 46.1, a 4-month low and weaker than consensus (47.5). This was driven by a 3.6 point fall in the Manufacturing PMI (to 42.3), which reflected weaker output but also, and particularly worrying, a decline in new orders and employment. By contrast, the Services PMI rose 0.5 points to 48.2, driven by better business activity and a strong rise in employment. While firms reported that economic uncertainty and tight financial conditions were weighing on demand and the Bundesbank this week warned that GDP could decline in Q1, future output expectations improved to a 10-month high of 54.7. The French Composite PMI surged by 3.1 points to 47.7, a 9-month high and much better than consensus (45). Both the Manufacturing PMI (+3.7 points to 46.8) and Services PMI (+2.6 points to 48) improved. In marked contrast to Germany, current output and new orders were up strongly. The INSEE business climate released earlier today was dragged lower by services and retail trade, but with the manufactu...
