Daily Insight
Group Economics Macro & Financial Markets Research
23 February 2016
Eurozone slows down
The eurozone composite PMI fell further in February …
… signalling weaker economic activity and lower inflation
Research
Softer data could help sway moderates at ECB to back aggressive easing
Tel: +31 20 343 5616
US manufacturing PMI also fell adding to weak global picture
Nick Kounis Head of Macro and Financial Markets
nick.kounis @nl.abnamro.com Aline Schuiling Senior Economist Tel: +31 20 343 5606 aline.schuiling@nl.abnamro.com
Composite PMI lower again The eurozone’s composite PMI staged its second monthly decline in a row. It fell to 52.7 in February, down from 53.6 in January. This decline has closed the gap between the composite PMI and GDP growth that had built up during the second half of last year. In fact, the PMI is now at a level that is consistent with GDP growth weakening somewhat from the 0.3% qoq that was recorded in 2015 Q4. Such a slowdown in GDP growth is in line with our below-consensus scenario for the eurozone economy. Indeed, we forecast the eurozone economy to expand by 1.2% this year, down from 1.5% in 2015.
Eurozone composite PMI and GDP growth level
% qoq
60
1.0
55
0.5
50
0.0
45
-0.5 -1.0
40 10
11
12
13
GDP (rhs)
14
15
16
Composite PMI (lhs)
Source: Thomson Reuters Datastream
Slowdown driven by exports and industrial output The details of the PMI report show that the weakness in the first two months of this year was concentrated in the industrial sector, with the manufacturing output index dropping by more than twice as much as the services sector activity index. This reflects the weakening of the global economy on the back of the ongoing tightening of financial conditions and heightened
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Daily Insight – Eurozone slows down - 23 February 2016
uncertainty caused by the market turbulence since the start of the year, as well as the appreciation of the trade-weighted euro since early December 2015. PMI report also points to lower inflation The price components of the Eurozone PMI report show that disinflationary pressures intensified further in February. Both the input and the output price index of the composite PMI declined that month and both indexes are now below their long-term average value. As in the case of the activity indexes, the weakness in prices was also concentrated in manufacturing. Indeed, the input prices index of the manufacturing PMI dropped to 40.4 in February, down from 41.1 in January. It now is at its lowest level since July 2009, when the global economy was contracting on the back of the financial crisis. Eurozone PMI survey could sway moderates on ECB Governing Council The weak activity and price readings from the PMI could help to sway some of the more moderate members on the Governing Council to back the doves to push through more aggressive monetary easing. In December, when the ECB disappointed with a more measured easing package, survey indicators painted a stronger picture of the economy. Our base case is that the ECB will surprise markets to the upside in the coming months delivering 40bp of deposit rate cuts (spread over March and June) as well as an increase in QE (facilitated by a dropping of the deposit rate floor for purchases). US manufacturing PMI adds to soft global picture Markit’s US manufacturing PMI fell to 51 in February from 52.4 in January, leaving it at its lowest level since October 2012. The details of the report were generally weak, with the new orders index falling more than the headline. This survey follows on the heels of declines in other nationwide surveys in the US, such homebuilder confidence and consumer sentiment (though those are coming down from higher levels). Overall, February’s PMI surveys add to the soft global picture and suggest the global economy remains stuck in a soft patch. We think lackluster growth will persist for a while followed by a moderate improvement later in the year.
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Daily Insight – Eurozone slows down - 23 February 2016
Day
Date
Time
Country
Monday Monday Monday Monday
22/02/2016 22/02/2016 22/02/2016 22/02/2016
10:00:00 10:00:00 10:00:00 15:45:00
EC EC EC US
Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday
23/02/2016 23/02/2016 23/02/2016 23/02/2016 23/02/2016 23/02/2016 23/02/2016 23/02/2016
08:00:00 08:45:00 10:00:00 13:00:00 14:00:00 15:00:00 16:00:00
Wednesday
24/02/2016
Thursday Thursday Thursday Thursday Thursday Friday Friday Friday Friday Friday Friday Friday Friday
Key Economic Indicators and Events
Period
Latest outcome
Consensus
ABN AMRO
PMI manufacturing - index PMI services - index Composite PMI output Markit - Flash PMI
Feb P Feb P Feb P Feb P
51.0 53.0 52.7 51.0
52.0 53.4 53.3
51.8 53.0 52.9
DE FR DE TR HU US US US
GDP - % qoq, final estimate and details Business confidence manuf. - index Ifo - business climate - index Repo rate - % Base rate -% S&P/Case Shiller house price index Existing home sales - % mom Conference Board cons. confidence - index
4Q F Feb Feb Feb 23 Feb 23 Dec Jan Feb
0.3 102.0 107.3 7.5 1.35 0.9 14.7 98.1
0.3 106.9 7.5 1.35 0.9 -1.5 97.2
16:00:00
US
New homes sold - % mom
Jan
11
-3
25/02/2016 25/02/2016 25/02/2016 25/02/2016 25/02/2016
10:00:00 10:30:00 11:00:00 14:30:00 15:00:00
EC GB EC US US
M3 growth - % yoy GDP - % qoq Core inflation - % yoy New durable goods orders - % mom FHFA house price index - % mom
Jan 4Q -2nd Jan F Jan P Dec
4.7 0.5 1.0 -5.0 0.5
4.7 0.5 1.0 2.0 0.6
26/02/2016 26/02/2016 26/02/2016 26/02/2016 26/02/2016 26/02/2016 26/02/2016 26/02/2016
00:30:00 06:30:00 11:00:00 14:00:00 14:30:00 16:00:00 16:00:00 16:00:00
JP NL EC DE US US US US
CPI - % yoy Producer confidence manufacturing - index Economic sentiment monitor - index CPI - % yoy GDP - % qoq annualised Univ. of Michigan cons. confidence - index PCE deflator core - % mom PCE deflator core - % yoy
Jan Feb Feb Feb P 4Q S Feb F Jan Jan
0.2 3.2 105.0 0.5 0.7 90.7 0 1.4
-0.1 104.5 0.1 0.5 91.0 0 1.5
106.6 7.5 1.35
96.5
0.4 1.0 1.0
104.0 0.2 0.7 0 1.5
Source: Bloomberg, Reuters, ABN AMRO Group Economics (we provide own forecasts only for selected k ey variables and events)
Find out more about Group Economics at: https://insights.abnamro.nl/en/
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