Eurozone: PMIs still weak, but modest rebound – Nordea

Nordea Markets analysts note that the euro area PMIs improved only marginally this month, making up for a weak start of Q4, putting pressure on the ECB to step up easing.

Key Quotes

“The euro area PMIs picked up slightly in October. The composite index came out 50.2, just below consensus. The manufacturing index stood unchanged at the low level of 45.7, contrary to expectations of an improvement. The services index saw a small improvement to 51.8 from 51.6 last month.”

“The PMIs indicate that growth in the euro area economy will remain subdued in Q4, but do not point to an economy-wide recession just yet. Our estimates suggest that the recent PMIs are in line with a mild recession scenario, which puts downside risks to our growth forecasts.”

“We don’t expect the ECB to decide on any action in its meeting today, and think that the focus will be on Draghi’s legacy. However, the weak economy supports our view that the ECB will need to step up easing again in December, with another rate cut and an expansion of the asset purchase programme.”

“Germany saw a slight improvement in its manufacturing PMI but remains at very low levels, as it landed at 41.9, just below expectations. The German manufacturing PMI gathers most attention due to its dramatic performance since the start of the year and its leading position in this slowdown. The services PMI had a small decrease to 51.2, contrary to expectations of an increase. This is a worrying sign that the service sector is being pulled down further, reflecting a broadening of the weakening in the German economy.”

“The French economy is still relatively robust. Last month, France was the only country of the big four in which manufacturing still recorded growth according to the PMIs. France is keeping up this record and saw a small improvement in the manufacturing PMI to 50.5. The service sector is going strong and surprised to the upside with the services PMI rebounding to 52.9, almost making up for last month’s loss. Sentiment indicators and an extraordinarily strong H1 for manufacturing suggest that the manufacturing compared to other countries might come down still in the last months of this year.”