IHS Markit Flash Eurozone PMI slides to a 2-month low in January

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Preliminary estimates based on the PMI surveys showed that the Eurozone lost some of its momentum in the first month of the year. The IHS Markit’s eurozone flash PMI fell to 54.3 in January, down from 54.4 in December on mixed results from the services and manufacturing surveys. The flash services PMI was at a 3-month low at 53.6 in January while the flash manufacturing PMI was at 55.1, posting a 69-month high, after registering a print of 54.9 in December.

Eurozone Flash PMI (January 2017) 54.3
Eurozone Flash PMI (January 2017) 54.3

Despite the overall slowdown and the services PMI falling to a 3-month low both the services and manufacturing sectors continue to show expansion with a reading above 50. The GDP data for the Eurozone for the final quarter of 2016 will be released this week on January 31, but economists widely are in agreement that the pace of economic growth in the eurozone has picked up since the slowdown from the middle of the year.

Despite coming out mixed, the flash PMI’s pointed to a robust start to the year with businesses reporting that additional workers were hired at the fastest pace since February 2008.

A stronger performance in the Eurozone economy in 2017 could help in the expected acceleration after a sluggish performance in 2016. However, economists remain cautious on the pace of the recovery which comes alongside early signs of inflationary pressures building up which could slow consumer spending. On top of this are the geopolitical risks of parliamentary elections from Germany, France, and the Netherlands, all of which could affect the sentiment in the euro area which has seen a rise of the anti-establishment parties that threaten to break up the European Union.

German manufacturing PMI at a 3-month high

IHS Markit also released the flash PMI survey results for Germany and France among other countries. Data showed that Germany’s manufacturing PMI rose to a 3-month high in January. Despite the positive news, data showed that activity in the dominant services sector fell further underscoring the increasing divergence in the economy’s private sector. German manufacturing PMI rose to 56.5 in January rising above estimates but the services PMI fell to a 4-month low at 53.2. Combined, Germany’s composite PMI fell to 54.7in January which was a 4-month low. IHS Markit said that overall, Germany’s services and manufacturing sectors are looking at a healthy pace of growth in 2017 forecasting a 1.9% growth in Germany this year, rising at the same rate as the year before.

[Tweet “France recorded a rise in its composite PMI which rose to 53.8 in January”]

In contrast, France recorded a rise in its composite PMI which rose to 53.8 in January, from 53.1 in December and marking a 67-month high. Data showed that French businesses had added to their payrolls at the fastest pace in the past five years. The French economy has been sluggish and was seen lagging behind Germany’s growth.

A resurgent French economy could potentially have wider implications to the point of changing the dynamics of the presidential elections. All the leading candidates have built their election campaigns on the rejection of the incumbent President Hollande’s economic policies which were attributed to years of weak growth and rising unemployment.

Flash surveys point to increase in prices

The PMI surveys also showed that European businesses raised the prices at the fastest pace since May 2011. If this is confirmed, it would be welcomed by the officials at the ECB as the central bank is seen struggling for nearly four years to push inflation closer to its 2% target rate. Latest inflation reports showed that the Eurozone’s headline consumer prices rose 1.1% in December 2016. But ECB officials remain cautious as they mentioned the risks of a premature tapering of the QE program. The central bank is seen coming under pressure from the German Bundesbank officials who have been calling for the ECB to stop its QE purchases.

The IHS Markit will be releasing the final PMI numbers for Eurozone and other economies this week starting Wednesday, February 1st.

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