Eurozone: PMI readings pointing to slow and steady growth – RBC CM

Research Team at RBC Capital Markets, suggests that despite both the German and French readings showing improvement, the euro area headline composite PMI weakened slightly to 52.9 in May suggesting weakening elsewhere in the currency zone to offset the improving picture in the core.

Key Quotes

“In terms of positives, the PMIs continuing to point to expansion in the euro area; our PMI based indicator shows the latest readings as consistent with growth of 0.3%.

For Germany, improvement in the composite reading was supported by both the services sector and manufacturing sectors but the outlook for the former did soften somewhat with businesses reporting new business at its weakest rate since last summer. Overall, the PMIs are consistent with continued (relatively) strong German growth in the order of 0.5% q/q.

In contrast, the French economy remains heavily dependent on domestic demand. At 48.3 in May, the manufacturing sector showed a third successive month of contraction. Despite that, the composite indicator strengthened for the first time this year to its highest level since October 2015 although overall the PMIs are pointing to another quarter of tepid growth in France of just 0.1%.

So overall, the PMI readings over recent months are pointing to a pattern of steady, slow euro area growth. But they are not showing any pick-up in momentum and the stand-out feature of recent PMIs readings is just how static they have been in recent months, since February the composite has fluctuated between 53.1 and 52.9 with all the main PMI readings in line with long-term averages. And with the forward leaning elements of the PMI survey weakened this month, at 52.3 new orders are at their lowest level since early 2015, no pick-up in momentum looks likely at this juncture.”