According to the advance estimate, the euro zone composite PMI dropped for the first time in four months, signalling that the euro zone economy is not yet out of the woods. Euro zone manufacturing PMI extended its rebound, rising for a third straight month, although at a slower pace than expected. The manufacturing PMI increased from 48.8 to 49.0, while the consensus was looking for an increase to 49.5. While this is the third consecutive increase, the slowdown in the pace is disappointing. In Germany, the manufacturing PMI dropped from 51.0 to 50.1, while the French one surprised on the upside of expectations, rising from 48.5 to 50.2. The biggest disappointment was however based in the measure of the services sector. Euro zone services PMI dropped from 50.4 to 49.4, below the 50 benchmark level, while a marginal increase was forecast. National data show that both in Germany (52.6 from 53.7) and France (50.3 from 52.3) sentiment weakened in the services sector. The available national data (German and French) suggest that there remains a wide divergence among EMU countries as Germany and France are showing marginal growth, while weakness is expected to persist in the austerity-hit peripheral countries. The PMI’s indicate that there is still a reasonable chance that the euro area will fall back into recession, but hard data over the coming months should provide us with more guidance.
There was however also positive news coming from the euro area. In December, euro zone industrial new orders rebounded by 1.9% M/M, while the consensus was looking for a more moderate pick up (by 0.5% M/M). The breakdown shows that orders for intermediate (1.5% M/M), capital (4.2% M/M) and non-durable consumer (0.1% M/M) goods rose in December, while orders for durable consumer goods fell by 2.7% M/M. Country details show a mixed picture with strength based in Italy (8.0% M/M), Ireland (3.4% M/M) and Germany (2.3% M/M), while orders dropped in Greece (-1.3% M/M), Spain (-1.2% M/M), France (-0.7% M/M), Portugal (-2.5% M/M) and the Netherlands (- 2.5% M/M). While the pick-up in orders is an encouraging sign, it is too early to draw strong conclusions from the order data as they are usually very volatile. Of course, orders data also lag the PMI data, suggesting that also orders may weaken again.