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PATRIS MACRO - Eurozone - Italian Composite Markit PMI falls to a 22-month low in August

5 Sep 2018

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Eurozone: August Final Services/Composite PMIs - The final IHS Markit Services for the Euro area region was unchanged compared to the flash reading at 54.4 (+0.2 points vs. July), while the Composite PMI was revised upwardly by 0.1 points to 54.5. The July/August average for the Composite PMI stands at 54.4, 0.3 points lower compared to 2Q18 average (vs. 55.9 in 1H18). The August reading for Euro area Composite PMI is consistent with a 0.4%-0.5%q/q rate of expansion for the economy in 3Q18.

Ireland, Germany, France, Spain and Italy all reported Composite PMIs in expansionary territory, with growth led by Ireland (PMI at a 7-month high, +1.6 points in August to 58.4). Composite PMIs in Germany and France & Spain reached 6-month and 2-month highs, respectively. However, in Italy, the PMI for August stood at a 22-month low in August.

Eurozone: August Final Services/Composite PMIs - The final IHS Markit Services for the Euro area region was unchanged compared to the flash reading at 54.4 (+0.2 points vs. July), while the Composite PMI was revised upwardly by 0.1 points to 54.5. The July/August average for the Composite PMI stands at 54.4, 0.3 points lower compared to 2Q18 average (vs. 55.9 in 1H18). The August reading for Euro area Composite PMI is consistent with a 0.4%-0.5%q/q rate of expansion for the economy in 3Q18.

Ireland, Germany, France, Spain and Italy all reported Composite PMIs in expansionary territory, with growth led by Ireland (PMI at a 7-month high, +1.6 points in August to 58.4). Composite PMIs in Germany and France & Spain reached 6-month and 2-month highs, respectively. However, in Italy, the PMI for August stood at a 22-month low in August.

Within the survey for the total private sector of the Euro area economy, the new orders sub-index improved slightly in August, while business confidence regarding future activity continued to weaken and reached the lowest level for 23 months, reflecting trade tensions uncertainty. The employment sub-index also rose slightly in August. On prices, the input prices sub-index eased to a 3-month low, with a similar trend seen for output charges.

Spain: The IHS Markit Services PMI was up by 0.1 points to 52.7 in August, broadly unchanged from July’s 56-month low, a level much weaker than seen earlier in 2018. Consensus expectations were for a decline to 52.0. The Composite PMI increased by 0.3 points to 53.0. The July/August average stands at 52.9, well below the 2Q18 (55.4) and 1H18 (56.0) averages, highlighting downside risks to the pace of expansion for the Spanish economy in 3Q18.

Within the services survey, the new orders sub-index reached the lowest reading since the end of 2016, after easing for the fifth successive month in August. The employment sub-index also softened in August (to a level that is still one of the strongest seen over the past 11 years), while business sentiment fell to a five-year low (following the fourth successive month of decline). On prices, the input costs sub-index reached the weakest reading in 2018 so far, although continued at a high level on the back of fuel costs. The output prices sub-index remained at a modest level, amid efforts to stimulate demand.

Italy: The Services PMI index declined by 1.4 points to 52.6 in August, a stronger fall than expected by consensus (53.1). The Composite PMI fell by 1.3 points to 51.7 (vs. consensus 52.2), the lowest level since October 2016 and 7.3 points below the high recorded in January 2018. The July/August average stands at 52.4, which compare to 2Q18 and 1H18 averages of 53.2 and 54.7, respectively.

The details of the services survey showed business expectations at their lowest level since June 2013, reflecting recent slowing of wider economic growth, concerns over the direction of government policy and ongoing difficulties accessing credit to fund investment. On a more positive note, the new business sub-index posted a small increase in August. The output prices sub-index remained in contraction territory, extending the current period of falling prices in the services sector to 7 months, amid reports of increasingly competitive market conditions. The input prices sub-index reached the lowest level since March, but it is still consistent with the idea of margins remaining under pressure given rising operating costs.

France & Germany: In France, the IHS Markit Composite PMI was revised down by 0.2 points compared to the flash estimate released on 23 August. The final reading is still 0.5 points higher compared to July’s 54.4 print. In Germany, the Composite PMI was revised slightly lower by 0.1 points to 55.6, which leaves the index with a 0.6 gain in August. The July/August average stands at 54.7 (vs. 55.4 in 2Q18) and 55.3 (vs. 54.3 in 2Q18) for France and Germany, respectively.

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