The PMI indices published today may indicate that concerns about economic growth may still be justified. We are talking here about data from the entire euro area economy as well as data from Germany.
The manufacturing PMI index in Germany was 44.3 points in May, which means a drop from 44.4 points in the previous month and the value below expectations at 44.8 points. The current publication pointed to the fifth month of decline in the manufacturing sector, as new orders continued to fall sharply, mainly due to lower demand in the automotive industry. In addition, the rate of job losses has accelerated to the highest level since January 2013. Purchase prices in the industrial sector decreased for the first time since June 2016.
Meanwhile, the services PMI in the euro zone fell in May to 52.5 points from 52.8 in the previous month. It was also a reading below the market expectations at 53 points. The initial reading pointed to the weakest dynamics of manufacturing activity in four months, as the growth of the new workforce slowed to the lowest level since 2014. In turn, the rate of job creation decreased. As far as prices are concerned, production cost inflation has remained elevated, mainly due to higher wages, and production prices have increased at the slowest pace for more than a year. Meanwhile, growth expectations in the coming year have reached the lowest level since 2014.
If that was not enough, the Ifo index in Germany for the sentiment in business dropped significantly. The Ifo business climate index in Germany fell by 1.3 points from the previous month to 97.9 points. This is as a result the lowest level since November 2014.
Today's data still raises concerns about any revival in the euro zone or in its largest economy, and thus in Germany. It is also the data that may put pressure on the European Central Bank, which has recently completed the asset purchase program, believing that the downturn will be short-lived. The ECB decided to postpone the increase in interest rates and launched a new program of cheap loans for banks – TLTRO, but if the situation does not improve, then the ECB may need to use other tools. It seems that all of this causes the depreciation of the euro, which is weakening for the third day in a row.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal Opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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