Eurozone PMIs Continue to Decelerate

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The Eurozone Purchase Managers Index (PMI) preliminary figures are out for February, and continue to show deceleration with the EZ Composite now at 52.7 (down from 53.6 in January). While some deceleration was expected, the fall was widespread across both countries and sector – only in the German services sector were expectations surpassed. The periphery also appears to be holding up in better shape, which we believe is not surprising given their smaller focus on manufacturing.

Looking more closely,  manufacturing activity has moved closer to stagnation across France and Germany. Services are doing better in Germany thanks to robust domestic demand (on the back of low oil, refugee related public spending and a solid labor market) but still saw the weakest growth since January 2015. In addition, leading indicators such as new orders and optimism about future activity fell, suggesting that the trend for the next few months is downwards.

At these levels, the PMIs are consistent with growth of around 0.3% quarter-over-quarter in the Eurozone as a whole (0.4% quarter-over-quarter in Germany), broadly in line with the previous quarter and around potential. So far, however, surveys have overestimated the actual growth pace, signaling risks are to the downside.

All in all, we believe this reading supports the case for robust action from the European Central Bank (ECB) in March. This is likely to include a further cut to the deposit rate, and potentially expansion to the QE (Quantitative Easing) asset purchase program.  

The comments provided herein are a general market overview and do not constitute investment advice, are not predictive of any future market performance, are not provided as a sales or advertising communication, and do not represent an offer to sell or a solicitation of an offer to buy any security.  Similarly, this information is not intended to provide specific advice, recommendations or projected returns of any particular product of Standish Mellon Asset Management Company LLC (Standish).  These views are current as of the date of this communication and are subject to rapid change as economic and market conditions dictate. Though these views may be informed by information from publicly available sources that we believe to be accurate, we can make no representation as to the accuracy of such sources nor the completeness of such information.  Please contact Standish for current information about our views of the economy and the markets.  Portfolio composition is subject to change, and past performance is no indication of future performance.
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