- Prior 51.3
- Manufacturing PMI 47.3 vs 47.0 expected
- Prior 46.6
- Composite PMI 50.2 vs 50.5 expected
- Prior 50.2
Despite a poor set of readings from France, the euro area economy managed to grow marginally in February. A rebound in the manufacturing sector helped, as services activity slumped to a three-month low. Demand conditions remain muted as new orders fell once more and firms are again seen cutting staffing levels on the month. Besides that, business confidence also eased to a three-month low. Adding to some slight concern for the ECB is that f input cost inflation quickened to the fastest in almost two years, with output prices rising at a
sharper pace as a result. HCOB notes that:
“With just two weeks to go before the ECB meeting, the price front is sending bad news. The HCOB PMI price indices for the
services sector have risen or remained at a high level. The statements by the ECB President can be interpreted as meaning
that inflation can only be considered defeated once the services inflation is under control. The HCOB PMI shows that this is
definitely not the case. This is partly due to the fact that wage settlements continue to be above average. Interestingly, it can
also be observed that input prices for goods are now rising more sharply. These depend, among other things, on energy
prices and, in this context, Isabel Schnabel pointed to the uncertainty, and strongly recommended discussing a pause on
interest rates at the next rate-setting meeting.
“The services sector is showing renewed signs of weakness. After two months of moderate but still visible growth, the rate of
expansion has now weakened considerably. This is accompanied by a decline in new orders and an accelerated decline in
order backlogs. France is the driving force behind the slowdown in activity in the services sector, where the decline in
business activity that has been ongoing since September has accelerated significantly. By contrast, Germany has more or
less maintained its modest rate of expansion. Assuming that the political situation has an impact on the performance of the
services sector, it can be seen that expectations of a more stable political situation in the future are greater in Germany,
where federal elections are on the horizon, than in France, where snap elections could be called at any time from June
onwards.
“Economic output in the eurozone is barely moving at all. The somewhat milder recession in the manufacturing sector is only
just being overcompensated for by the barely noticeable growth in the services sector. There is certainly hope for a German
government that will be able to act after the elections, which should also provide a positive impetus for the eurozone as a
whole. However, this is offset by a relatively unstable situation in France and a US customs policy that is spreading
uncertainty. These figures therefore do not yet point to a recovery in the eurozone.”