Euro Area: PMIs Continue To Edge Higher‏

Today's release of euro area PMIs was a tad better than expected, driven by an improvement in the service component. The euro area leading indicator continues to improve but still signals slightly negative growth in Q4.

German service PMI jumped sharply, while the manufacturing component edged lower. French PMI data improved in both manufacturing and service. Euro area manufacturing new orders and the order-inventory balance were broadly unchanged, while export orders continue to improve, indicating further improvements in the coming months.

The euro area continues to face strong headwinds. Nevertheless, we expect PMIs to continue to increase moderately over the coming months and the euro area to be out of recession in H1 13.

Details and outlook
Euro area flash manufacturing PMI increased to 46.3 in December from 46.2 in November, while service PMI increased to 47.8 from 46.7. The composite figure increased from 46.5 to 47.3. Overall the data confirm the moderate improvement we have also seen in other leading indicators. Today’s release signals GDP growth at around -0.1% q/q. Despite today’s moderate improvement in data, the euro area will most likely be trapped in a recession in Q4.

Manufacturing PMI new orders decreased slightly to 44.1 from 44.2, while export orders improved from 46.4 to 46.8. The order-inventory balance was broadly unchanged but the recent improvement indicates that we should see further moderate improvements over the coming months. This is also supported by the signals from our six-month forward model. We expect PMIs to increase moderately over the coming months and the euro area to be out of recession in H1 13.

Germany managed to avoid contraction in Q3 but it cannot be ruled out that the growth engine will experience negative growth in Q4. German flash manufacturing PMI decreased to 46.3 in December from 46.8 in November, while service PMI jumped to 52.1 from 49.7. Overall this was slightly better than expected. New manufacturing orders decreased from 45.3 to 44.3. Export orders improved, while stocks of finished goods declined, so the order-inventory balance increased substantially. Ifo data next week will be very interesting as there has been an improvement in the expectations index recently.

French flash manufacturing PMI improved marginally from 44.5 to 44.6 and also service PMI improved to 46.0 in December from 45.8 in November. The details were poor, though. French manufacturing new orders decreased from 41.8 to 39.5 and export orders dropped from 46.6 to 44.3. France is in recessionary territory and although today’s releases hint at minor improvement going forward the economy remains very fragile. The French housing market remains a concern.

To Read the Entire Report Please Click on the pdf File Below.