For the eurozone as a whole, the composite flash PMI was virtually unchanged from April. Manufacturing output was down again whereas services continue to grow, albeit at a slower pace.
When the eyes are too close to the screen, one runs the risk of only seeing pixels, so taking some distance may be necessary to see the picture. The PMI heatmap shows that manufacturing is in contraction territory in the past four months in the eurozone and, in Germany, in the past five months. The levels are well below 50, in particular in Germany. Recently there has been a stabilisation however. Over the same period, some improvement can be noted in France, where the index has crossed the 50 marker. There is some improvement of new export orders as of late, but the level is still below 50. Germany is far below this borderline between growth and contraction.
Finally, services have essentially been stable (and above 50) for several months in the eurozone, France has left behind its soft patch of the turn of the year and Germany, confronted with a weak fourth quarter, has rebounded in the first quarter. The index is again well above 50 and is doing even slightly better than one year ago. Add to this the usual list of supportive fundamentals (employment levels, job creation, growth of negotiated wages –which at 2.24% is at a level not seen since the end of 2012–, low interest rates and easy access to finance), and one would look at the future with some degree of comfort.
Whether this will materialise in the growth numbers depends very much on the external environment. The WTO’s world trade outlook indicator which was released this week suggests that weakness will extend into the second quarter. In addition, a lot will depend on how the trade negotiations between the US and China will develop – a solution looks more distant than ever –, what happens to Brexit and what the US will eventually decide on how it deals with automobile imports, a topic which is key for Germany and Europe. In a nutshell, the soft and hard data provide reasons for comfort but unease remains, mainly for reasons on which the eurozone has no control.
HEATMAP OF THE EUROZONE
