The decline in the trend indicator among European purchasing managers has been stopped for now in April following two consecutive dips. The continued high level suggests that the economy will continue to grow in the second quarter, albeit at a somewhat slower pace. A decline in the manufacturing industry was offset by better results among the service providers. The Composite Output Index, which condenses views from both sectors, therefore remained unchanged from the previous month at 55.2 points.
The latest survey results are consistent with our estimation. The correction to the trend indicators in recent months as well as the increase in political tensions worldwide are likely to have unsettled the corporate world. Economic growth should therefore have been more moderate in the first two quarters of 2018, compared with the relatively strong previous quarters.
In terms of country, the IHS Markit survey results show that the composite indicators in Germany and France moved slightly at a high level. Accordingly, sentiment in the rest of the eurozone is likely to have eased a little compared to the two major economic heavyweights.
German purchasing managers appeared to be slightly more optimistic again in April. While sentiment improved somewhat in the service sector, the survey result in the manufacturing sector remained almost unchanged, although this index level is significantly higher than that of the service providers. Combined, this represents a small increase in the composite index, which increased from 55.1 to 55.3 index points. While the employment sub-component improved again to some extent, the evaluations for business expectations were somewhat more sceptical. This also ties in with new orders. Although they continued to increase, the rate was the lowest seen in one and a half years. All in all, the almost overstated euphoric optimism that still prevailed among the German purchase managers at the turn of the year has given way to a somewhat more realistic assessment.
The deterioration in sentiment in the last few months was also halted in France. As is the case in the eurozone as a whole, the index for the service sector drove up the comprehensive composite index slightly from 56.3 to 59.9 index points. On the other hand, assessments in the manufacturing sector continued to ease, but only slightly. All in all, the trend barometers remain above the neutral level of 50 index points and therefore even exceed their long-term averages. The signal being given here is clear: the economy continues to recover but at a more moderate pace.