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Eurozone flash PMI’s signal robust growth in August

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Summary:

  • Eurozone flash manufacturing PMI rises at the fastest pace in six and half years
  • Eurozone flash services PMI falls to a 7-month low
  • Evidence of price pressures in output building up
  • Markit: PMI’s consistent with the 0.6% GDP growth rate in the eurozone

IHS Markit’s flash estimates of the purchase manager index across the manufacturing and the services sector showed that business activity continued to expand in August.

The strong numbers came with both Germany and France registering strong output growth during August. Germany’s output showed a faster pace of expansion compared to the month before.

Bundesbank’s report shows strong growth

Earlier this week, the German Bundesbank released its monthly report for Germany. The German central bank said that strong growth trends in the current quarter suggested a continuation to the economic expansion.

“The strong economic upturn in the German economy is expected to continue in the third quarter, with industrial output probably continuing to play an important role, thanks to a substantial expansion in exports,” the Bundesbank said in its report.

The PMI data released last week showed that manufacturing activity outperformed showing the best increase in nearly six and a half years. This comes despite the appreciation in the exchange rate of the euro. The strong performance in the manufacturing sector managed to offset some weakness in the services sector growth.

With the August estimates showing that the pace of momentum continued to increase along with the fact that there was evidence of price pressures, the markets are expecting to see the ECB coming out with the appropriate policy response.

Data showed that the flash manufacturing PMI rose to 57.4 in August, accelerating from 56.6 in July. This was better than the estimates that forecast a decline in manufacturing activity to 56.3.

However, on the flipside, the services sector fell to a 7-month low to 54.9 in August. This was weaker than 55.4 in July and missed estimates of 55.4. Despite dropping to a 7-month low, the rate of expansion in the services sector was seen to be looking strong.

Combined, the Eurozone flash composite PMI rose to 55.8 in August, up from 55.7 in July reaching a two-month high.

Commenting on the flash PMI’s Andrew Harker, associate director at IHS Markit said that the latest PMI numbers suggested a continuation of the economic performance in the eurozone. He said that the PMI’s were consistent with the GDP growth rate of 0.6% that was registered in the second quarter.

Eurozone composite PMI and GDP performance, August 2017
Eurozone composite PMI and GDP performance, August 2017

Although he expressed concerns about growth cooling in the services sector, this was offset by a stronger than expected performance in the manufacturing sector.

Manufacturing sector outperforms services

Data from IHS showed that manufacturing activity grew strongly on all counts. Output orders and new orders rose strongly with new orders for exports rising at the fastest pace.

Outstanding business orders, however, eased to the slowest levels this year but were in line with the trend in the services sector, the IHS release showed. Job creation was also seen to have remained solid, but lower employment growth was witnessed across both manufacturing and the services sectors.

Inflation which remains a key point for the ECB’s next move also showed some positive signs. The recent trend of weaker prices was seen to be fading with cost inflation rising for the first time since February this year.

Output prices were also seen rising at the fastest pace in three months, but the rate of change in inflation remained modest. Still, the data was consistent to show that inflationary pressures were starting to build up.

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