Chart of the week

February’s Eurozone composite PMI rose a welcome 0.9 points from 51.0 to 51.9 following five straight falls in a row. However, the upturn masks some significant divergences. While the Manufacturing PMI continued its descent to reach 49.3, a record low since June 2013, the Services PMI rose to 52.8, following two stable months. The composite PMI is currently in line with a Eurozone growth rate slightly exceeding 1% for the first quarter of 2019, up from +0.9% in the previous quarter.

OUR ANALYSIS

The PMI surveys would seem to imply that, rather than faltering, the Eurozone’s weak expansion from the final quarter of 2018 is set to continue into the first quarter of 2019. The disappointing pace will automatically lead most financial institutions to revise their annual growth forecasts downwards, but momentum can be expected to pick up in the quarters ahead.

Several external factors that have dragged on Eurozone activity (auto sector disruptions, Italian political uncertainties) are now dissipating. In addition, household purchasing power will get a boost from faster salary increases and lower oil prices, and fiscal policy is set to be more supportive. Finally, the launch of a fresh round of targeted longer-term refinancing operations by the ECB, starting in September 2019, should also underpin growth.

The opinion expressed above is dated March 7th, 2019, and liable to change.

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