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22 Feb 2016
Eurozone economy slowed down by global weakness and looming Brexit – ING
Bert Colijn, Research Analyst at ING, notes that the Eurozone composite PMI has decreased to 52.7 in February from 53.6 in January, confirming concerns that global weakness is starting to weigh on the Eurozone economy.
Key Quotes
“This is the worst reading since January 2015, which left analysts disappointed as expectations were for a decline to just 53.3. Growth in the Eurozone is weighed down by uncertainty about the global economy, but also by fears closer to home, like the uncertainty surrounding a possible Brexit later this year.
While this is the case, the PMIs are still signaling output growth in both services and manufacturing, but growth in both sectors of the economy is slowing. The slower global environment is mainly weighing on the manufacturing industry, while services are hurt by more by weakening consumer confidence at home.
Also concerning is the fact that this month’s PMI indicates further deflationary pressures in the Eurozone. As businesses continue to charge less for goods and services, it seems unlikely that inflation will pick up in the months ahead, which could be an additional trigger for the ECB to act in March. In the current environment, with indications of weakening growth, very slow price growth and weakening inflation expectations, it seems that the decision is not whether the ECB will act next month, but how much it will do.
Germany and France, the largest two Eurozone economies, both saw declines, but with different sectoral performance. In France, manufacturing improved in February, and is now indicating growth for French industry. The economy as a whole decreased to below 50 though, indicating that the French economy contracted.
In Germany, services improved in February, while manufacturing saw a significant decline. Both sectors are still showing growth, although this is just barely the case for manufacturing at a reading of 50.2. This confirms that Germany is impacted relatively strongly by global weakness, especially compared to France.”
Key Quotes
“This is the worst reading since January 2015, which left analysts disappointed as expectations were for a decline to just 53.3. Growth in the Eurozone is weighed down by uncertainty about the global economy, but also by fears closer to home, like the uncertainty surrounding a possible Brexit later this year.
While this is the case, the PMIs are still signaling output growth in both services and manufacturing, but growth in both sectors of the economy is slowing. The slower global environment is mainly weighing on the manufacturing industry, while services are hurt by more by weakening consumer confidence at home.
Also concerning is the fact that this month’s PMI indicates further deflationary pressures in the Eurozone. As businesses continue to charge less for goods and services, it seems unlikely that inflation will pick up in the months ahead, which could be an additional trigger for the ECB to act in March. In the current environment, with indications of weakening growth, very slow price growth and weakening inflation expectations, it seems that the decision is not whether the ECB will act next month, but how much it will do.
Germany and France, the largest two Eurozone economies, both saw declines, but with different sectoral performance. In France, manufacturing improved in February, and is now indicating growth for French industry. The economy as a whole decreased to below 50 though, indicating that the French economy contracted.
In Germany, services improved in February, while manufacturing saw a significant decline. Both sectors are still showing growth, although this is just barely the case for manufacturing at a reading of 50.2. This confirms that Germany is impacted relatively strongly by global weakness, especially compared to France.”