European PMI’s less pungent


Eurozone Manufacturing PMI was out on Friday night and the news was a little better than expected.

  • Final Eurozone Manufacturing PMI at 11-month high of 47.9 (flash: 47.5, December: 46.1)
  • Output rises in Germany, the Netherlands and Ireland, but downturn deepens in France
  • Price pressures remain subdued, as cost inflation eases and output prices fall

Not a terrible result given previous data, but as you can see much of the region remains in contraction, even if the rate has slowed. Once again Markit’s chief economist provided a good wrap.


The Eurozone economic picture continues to brighten, with the final reading of the manufacturing PMI for January coming in ahead of the earlier flash estimate. The survey continues to signal an overall deterioration of business conditions, but rose to an 11-month high to suggest that the industrial sector is close to stabilising after contracting throughout much of last year.

“The improvement was led by Germany, which saw the strongest gain in output of all eurozone states, but rising exports are also helping to revive the manufacturing sectors of other countries, most notably Spain and Italy.

“While the industrial sector looks likely to have acted as a drag on the eurozone economy in the final quarter of last year, deepening the double-dip downturn, the PMI provides hope that the first quarter could mark the start of a turnaround. Providing there are no further set-backs to the region’s debt crisis, these data add to the expectation that the eurozone is on course to return to growth by mid-2013.

The table below shows the national break-up which clearly show the recent re-surgence of Germany while France stumbles.


I wrote back at the beginning of 2012 that I expected France to under-perform over the next few years due to the structure of its economy and what would be the likely outcome of a program of austerity under those circumstances. The latest data from France is particularly poor and worth highlighting given that it is still the 5th largest economy in the world.

  • Accelerated fall in production
  • New orders down at sharpest rate since March 2009
  • Employment declines at fastest pace for six months

The deterioration in French manufacturing sector business conditions continued in January. The fact that new orders fell at the sharpest rate for nearly four years is a particularly concerning development and suggests further steep falls in output are likely as we progress throughout the first quarter. Confidence seems to have evaporated in the face of an increasingly uncertain economic environment, leading manufacturers to make sharper cuts to employment, purchasing and input stocks in the latest survey period.

Speaking of unemployment, the latest figures came out on Friday and, like the PMI data, are showing some overall stability. The trends, however, are obvious in the data as unemployment continues to rise in much of the periphery and France.


Youth unemployment remains a major concern for obvious social and stability reasons. In December Spain reported a stunningly high rate of 55.6% while Ireland, Italy, portugal and France all reported rates about 25%.

The next big question over the coming months is what happens to the euro, which now looks on the way to $1.40 from $1.20 last July. Continuing strength from Germany, the reversal of some of the LTRO trade and central bank intervention from other regions is likely to keep the euro high and this will begin to weaken the competitiveness of the Eurozone countries in comparison to their global competitors. If this persists then we are likely to see a reverse in the slowing of contraction and therefore a continuation of rising unemployment.


So overall, the data is less pungent than it has been, but it still doesn’t smell too great. That may however be due to the disturbing aroma that has begun to emanate from the banking system recently.