Eurozone growth likely only a little above trend – ABN

Aline Schuiling, a senior economist at ABN Amro, explained that the EZ PMI stabilised at level consistent with growth only a little above the trend.

Key Quotes:

“The preliminary eurozone PMI data were released today. The eurozone continues to see a diverging story of fundamental drivers. On the downside, industry continues to be weak, and the manufacturing PMI has been declining since the start of the year. In August it fell to 54.6, down from 55.1 in July. Meanwhile, the more forward looking parts of the manufacturing PMI painted a mixed picture. Although the new orders component increased a bit (to 53.3 from 52.2), the stock of finished goods rose as well, implying that the ratio between new orders and existing stocks fell. Changes in this ratio of orders to stocks tend to move roughly in sync with changes in industrial production, implying that the weakness in the eurozone’s industrial sector has continued in August.”

“However, on the positive side, services (which make up almost 75% of eurozone GDP) continue to grow robustly. The services PMI increased to 54.4 in August, up from 54.2 in July. The forward looking new business component also rose (to 54.4 from 54.1), as well as the employment component. Thanks the rise in the services PMI the composite PMI for the economy as a whole increased slightly in August, to 54.4, up from 54.3. The composite PMI has been hovering around its current level in the past few months after it dropped sharply during the first five months of this year. At its current level it is consistent with GDP growth of around 0.5% qoq, which is only a little above the trend growth rate of around 0.3-0.4%. Indeed, our base scenario for the eurozone economy is for GDP growth of around 0.5% qoq in the second half of the year, although the risks to this scenario are tilted to the downside due to a possible escalation of the global trade conflict. In any case, with growth around trend and with risks to the downside, underlying inflationary pressures in the eurozone are expected to remain subdued for a considerable time.”