Econintersect: The preliminary ("flash") PMI (Purchasing Managers' Index) for manufacturing in the Eurozone fell a full point from January to February, coming in at 53.0. The service sector PMI barely budged, reading 51.7 in February following a 51.6 for January. Both readings fell short of analysts' projections. Outside of Germany unemployment remains a major weakness.
The "maybe" in the headline reflects the new high in new business growth. The fact that the data constitutes a 32-month high is not as encouraging as it might sound: the measurement was between 45 and 48 for much of that time, indicating a significant contraction.
Commenting on the flash PMI data, Chris Williamson, Chief Economist at Markit said:
"A dip in the eurozone PMI provides a reminder that the region's recovery continues to be uneven and fragile. The slight easing in growth is disappointing, but it's too early to read too much into one month's data, especially as the rate of growth of new orders picked up to its highest since mid-2011. Looking at the latest two months as a whole, the PMI suggests the region is on course to see GDP expand by up to 0.5% in the first quarter, which would be the strongest growth for three years.
"Growth continued to be led by Germany, which contrasts with a worrying renewed downturn in France, where malaise in the domestic economy is offsetting better export performance and suggests there is a risk of the French economy contracting again in the first quarter. Germany, on the other hand, is likely to see GDP increase by as much as 0.7%. The "periphery" is meanwhile enjoying its best period of growth since early-2011, which should help drive a more broad-based and sustainable expansion as we move through 2014.
"Unemployment looks set to remain a worry, as companies report ongoing pressure to keep headcounts down to reduce costs and boost competitiveness. Prices also continue to fall, albeit at the slowest rate for almost two years, as companies could often only generate sales via discounting."
The continuing falling prices in all areas except for manufacturing is also a concern. An article yesterday (GEI News) by three economists from the Federal Reserve Bank of New York reviewed the falling inflation data for Europe and concluded that a majority of economists consider the effect to be transitory and not a harbinger of deflation. Nonetheless the data must be viewed as possibly indicatinf deflationary pressure, and is certainly disinflationary.
- PMI signals ongoing robust recovery as new orders show largest rise since mid-2011 (Markit, Press Release, 20 February 2014)
- Euro-Area Recovery Loses Pace as Manufacturing Weakens: Economy (Catherine Bodley, Bloomberg)
- Inflation Outlook in the Euro Zone (GEI News, 20 February 2014)