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PATRIS - MACRO - The composite PMI in the Eurozone fell again in December

14 Dec 2018

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Bottom-Line: The flash Markit Eurozone composite PMI fell by 1.4 points to 51.3 in December (vs. consensus 52.8), the lowest level since November 2014, reflecting the strong decline recorded in France (due to the “gilets jaunes” protests). The PMI in Germany was little changed, while for the rest of the region, data released by Markit suggest a slight decline in December. The December reading is consistent with a very weak pace of expansion for the euro area economy at the end of the year.

Markit manufacturing and services PMIs both posted declines in December. In Germany, the services PMI fell by 0.8 points to the lowest level since May 2018.

New business inflows almost stalled at the euro area level, while business optimism deteriorated (reflecting concerns over trade and economic growth, rising political uncertainty, BREXIT and tighter financial conditions) and job creation slipped to a two-year low. Output grew only modestly. New export orders, which includes intra-eurozone trade, remained in contractionary territory for a third consecutive month and recorded the lowest reading since the series began over four years ago. Widespread reporting was again seen of disappointing sales and production in the autos sector. Output price inflation slowed to the lowest since September last year (while it remained stronger in Germany than in France or the rest of the region).

Details:

France: Markit composite PMI fell by a strong 4.9 points in December to 49.3 (vs. consensus 54.0), according to the flash reading released this morning. This is the first print in contractionary territory since June 2016 and the lowest value since February 2016. The PMIs for manufacturing (-1.1 points to 49.7, vs. consensus 50.7, the lowest level since September 2016) and services (-5.5 points to 49.6, vs. consensus 54.8, the lowest reading since February 2016) declined both into contractionary territory. The 4Q18 average for the Markit composite PMI stands at 52.5, which is the lowest reading since 4Q16.

The press release disclosed by IHS Markit mentions widespread reports of disruption to business due to the “gilets jaunes” protests. Manufacturers continued to blame the automotive sector slowdown rather than the aforementioned protests. Employment growth decelerated further, with the sub-index reaching the lowest reading since February 2017, primarily driven by a second successive cut to manufacturing jobs. Average output charges rose moderately again in December. Confidence towards the business outlook fell to its lowest level for three years, as firms were worried about the social unrest and its potential to have further adverse effect on economic activity.

Germany: Markit/BME composite PMI was little changed in December (52.2 after 52.3 in November, vs. consensus 52.4, the lowest reading since December 2014), on the back of declines in both manufacturing (-0.3 points to 51.5, vs. consensus 51.7, the lowest level since March 2016) and services (-0.8 points to 52.5, vs. consensus 53.5, the lowest reading since May 2018). The 4Q18 average for the Markit/BME composite PMI stands at 52.6, which is the lowest reading since 4Q14.

The manufacturing new orders sub-index remained in contractionary territory for a third straight month and recorded the lowest level since November 2014. The services new orders sub-index remained in expansionary territory, although at the lowest level in seven months. Hence, inflows of new business for the private sector edged close to stagnation and reached the lowest level for four years. The new export business sub-index remained in contractionary territory for the fourth month running., led by a further decline in manufacturing export orders, with a number of manufacturers highlighting a drop in sales to China. The employment sub-index at the composite level picked up slightly from November’s six-month low. Average charges for goods rose at a solid pace (broadly unchanged from the month before). The year-ahead business confidence fell to the lowest level for over four years, with sentiment among services firms declining to the lowest level since October 2015.

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