Today's flash PMIs signal that the euro area is slowly returning to growth. Euro area manufacturing PMI increased to 49.5 from 48.3 and service to 48.6 from 47.2. Although still below 50, the historical relationship indicates that the current level of manufacturing PMI is equivalent to growth of around 0.2 % q/q .
At the current juncture, the improvement appears to be driven primarily by a stabilisation in domestic demand while exports fail to contribute. PMI manufacturing export orders now signal a slight contraction in exports . The weak Chinese PMIs released this morning hint that the short-term weakness in euro area exports might become even more pronounced in the coming months.
Looking further ahead, we continue to expect that the global recovery will be a key driver that will help to pull the euro area out of the crisis. The order-inventory balance signals a modest improvement in manufacturing PMI. This is broadly in line with the positive, but weak, signal from our six-month model.
Historically, composite PMI has been a useful indicator of the spread between the 2Y German government bond rate and the refinancing rate. If this relationship begins to hold again, then 2Y rates should increase another 20bp.
Alternatively the ECB should cut rates. Our speed limit approach still signals that the ECB should deliver another 25bp rate cut. To be clear: we do not expect rate cuts unless data deteriorates from here. In our view, today's data shows sufficient improvement to keep an ECB rate cut off the radar screen .
To Read the Entire Report Please Click on the pdf File Below.
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Euro Area PMI Signals Weak Growth Driven By Domestic Demand
Published 06/21/2013, 08:27 AM
Updated 05/14/2017, 06:45 AM
Euro Area PMI Signals Weak Growth Driven By Domestic Demand
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