EUROZONE

by Chris Anderson

Mostly Better Than Expected

Flash PMI data for February forecasts the Eurozone composite index at 52.3 versus 50.3 in January, the manufacturing PMI at 48.5 versus 48.8 for January, and the corresponding manufacturing production index at 50.4 versus 48.9 for January.

On the manufacturing side, chemical, plastics, and basic resources remained the main areas of weakness, while food and drink, household goods, and industrial goods manufacturing showed further signs of recovery. Automaking likewise continued to pull out of the slump seen last year. Within the Euro area, both France and Germany returned to growth for the first time since last October and last June, respectively. The composite PMI for France rose from 49.1 to 51.6, albeit with growth confined to the service sector. The composite PMI for Germany meanwhile edged up from 49.9 to 51.1, reflecting a second successive monthly rise in service sector activity and the first expansion of manufacturing output since last May. However, it was the rest of the Eurozone that reported the strongest performance with the composite index up from 51.4 to a nine-month high of 53.9, thanks to broad-based growth of manufacturing and services.

In manufacturing, the renewed growth of output was also often linked to improved supply chains, with average supplier delivery times shortening for the first time since January 2020, and to the greatest degree since May 2009. An especially marked improvement in supplier performance was recorded in Germany, where a survey reported the shortening of lead times.

The acceleration of growth of output across the Eurozone was fueled by the first, yet modest rise in new orders since last May, which was driven by the steepest increase in demand for services for nine months and the shallowest – though still marked – drop in new orders for goods over the same period.

All is consistent with an expanding economy in the first quarter so far, with employment also on the rise.

• France, flash composite, 51.6 vs 49.1 January; 7-month high

• France, flash manufacturing output index, 45.9 vs 47.5 January; 3-month low

• France, flash manufacturing index, 47.9 vs 50.5 January; 4-month low

• Germany, flash composite, 51.1 vs 49.9 January; 8-month high

• Germany, flash manufacturing output index; 50.6 vs 48.4 January, 9-month high

• Germany, flash manufacturing index, 46.5 vs 47.3 January, 3-month low.

There is an air of optimism presently in the Eurozone manufacturing and services sector. The order books show reduced rates of contraction, while input cost inflation cooled further thanks to the alleviation of supply chain stress, but the average selling price inflation for both goods and services went slightly higher. It is boiling down to the first expansion in business activity since last June. Manufacturing production contracted modestly, showing the smallest drop in factory production since last June.

Meanwhile, France’s annual inflation rate reached a record high of 7.2% in February, up from 7% in January. Soaring food and service costs, in particular, pushed prices up. Spain’s inflation rate also ticked up, reaching 6.1% in February, up from 5.9% last month. The figures will put more pressure on the European Central Bank to further raise interest rates.

While all the data seem to be “teetering on the edge” the overall news is encouraging. A renewed slide into contraction should not be ruled out as borrowing costs rise, but the survey brings welcome good news to suggest that any downturn is likely to be far less severe than previously feared and that a recession may well be avoided altogether. n