Group Economics
Daily Insight
Macro & Financial Markets Research Nick Kounis & Aline Schuiling
Slowing euro momentum?
+ 31 20 343 5616
22 May 2015
Eurozone composite PMI falls due to a drop in the services sector PMI … … but there are good reasons to expect a strengthening economic recovery ECB meeting account stressed commitment to implement QE in full
Eurozone PMI falls on weaker services sector … The eurozone composite PMI for May was weaker than
Euro consumer confidence slips, but still high
expected. It fell to 53.4, down from 53.9 in April. Looking at the components of the survey, it turns out that the decline was totally due to a drop in the services sector PMI (to 53.3 in May from 54.1 in April). The new orders index for the services sector (which tends to be very volatile) dropped by almost one point but remained at a level consistent with expanding output in May (53.8). Despite the decline in orders, employment in the services sector increased, with the index rising to 52.4 from 51.8, which signals firming job growth.
Index
5 0 -5 -10 -15 -20 -25 -30 -35 -40 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 Consumer sentiment
… while manufacturing sector and employment improve In contrast, the manufacturing PMI increased to 52.3 from 52.0 and reached its highest level in more than a year. The new
Source: Thomson Reuters Datastream
orders index increased by 0.8 points to 52.6, while new export orders were even stronger (up by 1.1 points, to 53.0). This
ECB adopts positive tone at April meeting…
adds to the evidence that the weak euro is supporting the
The account of the ECB’s April Governing Council meeting
eurozone economy. As in the case of employment in the
(what other central banks call minutes) recorded a positive
services sector, employment in manufacturing expanded in
tone. Members generally saw the economy gaining
May, with the index moving further above the boom-bust level
momentum, loan dynamics recovering, inflation bottoming out
of 50 (52.3 in May).
and inflation expectations increasing. Much of this was related to the ECB’s actions, so the group appeared to be very
Eurozone consumer confidence slips
pleased with itself.
Meanwhile, the flash estimate of eurozone consumer confidence declined in May, to -5.5 from -4.6 in April. The
…but emphasised strong commitment to QE
details are not yet available so it is unclear what exactly drove
implementation
the fall. Certainly it seems at odds with the ongoing
Despite all the good news, Governing Council members went
strengthening of the jobs market recorded by the PMIs.
to great lengths to stress their strong commitment to continuing
Potentially, the deterioration in financial market sentiment and
the programme. On numerous occasions during the meeting
worries about Greece may have played a role. In any case, the
officials stressed a focus on ‘firm’ and ‘full’ implementation of
indicator remains at high levels consistent with robust
the programme. They stressed that the improved outlook for
consumer spending growth.
growth and inflation was ‘conditional’ on such a full implementation.
Good reasons to expect a strengthening recovery Overall, the declines in the surveys do not signal a major loss
No tantrums please
of momentum. The composite PMI for instance is consistent
There can be little doubt that this message is firmly designed
with annualised growth of more than 1.5%. In addition, the past
to prevent a taper tantrum in financial markets, with a view to
fall in oil prices, the decline in the euro and easing financial
avoiding a premature tightening in financial conditions.
conditions point to a strengthening recovery going forward.