Germany’s unexpected economic contraction in Q3 was largely put down to special factors with a quick rebound promised for the fourth quarter. However, after Germany, today’s PMI data out οf France and Eurozone as well, gave further contraction signals for Europe.
French PMI readings signal contraction, with the manufacturing PMI falling back to just 49.7 from 50.8 and the services reading dropping to 49.6 from 55.1. The increasingly violent protests against government policies clearly left their mark and Markit said there were widespread reports of disruption to business, with the largest impact seen in the services sector, which reported the first contraction in activity since June 2016.
In the manufacturing sector it was mainly the slowdown in the automobile sector that had an impact. While Macron’s u-turn on spending may help the services sector to stabilise, the problems in the automobile sector are unlikely to be over soon as geopolitical tensions and problems with diesel emissions continue to plague companies.
Meanwhile, Europe also confirmed contraction signs after the French releases, with composite PMI falling back to a 49 months low of 51.3 with the preliminary December reading from 52.7 in November. The services PMI dropped to 51.4 from 53.4 and manufacturing PMI to 51.4 from 51.8. The separate manufacturing output PMI, meanwhile, rose to 51.0 from 50.7 in November.
Market reported a near stalling of growth in new work, which registered the smallest increase since December as new export orders, which actually include intra-Eurozone trade, fell for a third successive month. The fact that the manufacturing output PMI still improved backs expectations for a backup in GDP growth compared to the third quarter, but the outlook is clearly deteriorating, which chimes in with Draghi’s admission yesterday that the outlook is slowly tilting towards the downside. Not surprising then, after the confirmation of the phasing out of QE, ECB is not effectively in wait-and-see mode, with a new round of TLTROs still an option.
The data backs Draghi’s leaning presser yesterday where he suggested that the risks to the outlook are slowly starting to tilt to the downside.
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Andria Pichidi
Market Analyst
HotForex
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