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PATRIS - MACRO - Eurozone: Markit composite PMI declines in November and suggests that the economy may not rebound in 4Q18

26 Nov 2018


Bottom-Line: The Markit composite PMI fell 0.7 points in November to 52.4, according to the preliminary reading released this morning (vs. consensus 53.0). This is the lowest value since the end of 2014. The October/November average stands at 52.8, after 54.3 in 3Q18, suggesting that the region will probably continue to show a weak pace of expansion in the last quarter of 2018 (see chart). The manufacturing PMI for the region fell by 0.5 points to 51.5 (vs. consensus 52.0). The survey brought further signs that the slowdown is broadening out beyond manufacturing, as the services PMI (-0.6 points to 53.1, vs. consensus 53.6) fell to the lowest level since October 2016.

New business inflows slowed to the lowest level since the start of 2015. Manufacturers continued to mention sluggish car sales, amongst other headwinds. New business inflows in the service sector hit a 25-month low. Employment growth slowed in both sectors, dropping to a 22-month low. Input cost inflation remained slightly higher than the average recorded so far this year, reflecting energy, raw materials and staff costs. Output price inflation remained elevated and unchanged in October, albeit down from highs earlier in the year. However, manufacturing prices showed one of the smallest increases over the past year.

The limited breakdown by countries showed the composite PMI for Germany falling to a near four-year low, with the services PMI declining by 1.4 points on the month. Especially sluggish was probably growth in the euro area excluding Germany and France, with Markit saying that the rate of expansion was the slowest since November 2013, easing in both sectors to register only modest expansions.


France: Markit composite PMI fell by 0.1 points to 54.0 in November (vs. consensus 53.9), according to the preliminary data released this morning, reflecting declines in both manufacturing (-0.5 points to 50.7, vs. consensus 51.2) and services (-0.3 points to 55.0, vs. consensus 55.0). The October/November average stands at 54.1 for the composite PMI, which compares to 54.4 in 3Q18. The composite PMI remains near its lowest level in close to two years.

The details of the survey showed manufacturing production contracting for the second month running, albeit marginally (with anecdotal evidence suggesting falling demand particularly for autos). The new business component for the French private sector softened to a four-month low, due to a further contraction in the manufacturing sector (with reports of weakness in auto demand) and a slower expansion in services. The employment component in manufacturing fell into contraction territory (albeit marginally), for the first time since October 2016. In the service sector, the employment component remained in expansionary territory, although the reading was the lowest in 15 monthsOn prices, the rate of inflation in input costs eased to a three-month low (despite the steepest rise in costs since February recorded in manufacturing). Output charges rose again in November but remained at a modest level. Finally, confidence towards the 12-month business outlook declined to a two-year low (the lowest level since November 2016 in services and a 29-month low in manufacturing).

Germany: The Markit/BME composite PMI fell by 1.2 points in November to 52.2 (vs. consensus 53.1). This is the lowest reading since the end of 2014. The manufacturing PMI fell by 0.6 points to 51.6 (vs. consensus 52.2), a 32-month low, while the services PMI declined by 1.4 points to 53.3 (vs. consensus 54.5). The October/November average for the composite PMI stands at 52.8, after 55.2 in 3Q18, suggesting a new slowdown in the pace of GDP growth for the German economy in 4Q18

New order growth eased closed to stagnation, amid a further decrease in new exports. In manufacturing, order books fell for the second month runningand to the greatest extent in four years. The rate of inflation of charges for goods and services eased to a six-month low, though still remained elevated by historical standards. The employment component for the German private sector reached the lowest level since May (albeit still well above the long-run series average). Confidence towards the year-ahead outlook fell to the lowest in almost four years, reflecting concerns towards geopolitical tensions, weakness in the automotive sector and cooling market demand.


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