Purchasing managers‘ indices in the euro zone: The not so merry month of May

According to the preliminary results of the purchasing managers‘ survey in the euro zone, the sentiment barometer continued to decline in May compared with the previous month, with the composite index falling to its lowest level in 18 months. While the purchasing managers‘ indices still lie above the growth threshold, the signal being sent out from the survey is one of subdued growth again for the second quarter. The growth rate is unlikely to reach the +0.4 percent mark recorded in the first quarter; the economy in the euro zone has therefore lost considerable momentum. This is commensurate with our forecast scenario.

According to preliminary figures, the composite index for the euro zone fell from 55.1 to 54.1 index points in May. This is due to a decline in sentiment in industry and among service companies. Growth in new orders and business activities has decelerated, as have employment intentions and order backlogs. At the country level, the survey result has turned out more sceptical in Germany and France than in the rest of the currency area, according to IHS Markit.

Sentiment among German purchasing managers clouded over noticeably in May. The two sentiment barometers for industry and service companies fell compared with the previous month, sending the composite index down from 54.6 in the previous month to 53.1 index points. This is the lowest level in 20 months. The survey results signal that growth will continue to weaken in the private sector but will remain positive. Overall, business activities recorded only slight gains. Growth in new orders and employment also turned out weaker. The IHS Markit data also show business expectations to have deteriorated to their lowest level since November 2018. The survey results suggest that economic growth is unlikely to be stronger in the second quarter than in the first quarter.

In France, too, sentiment in the private sector has weakened further. The broad-based composite index stood at 54.5 points in May, 2.4 index points below the previous month’s level. This is the lowest reading since the beginning of 2017. The comparatively strong decline can be attributed to a far more sceptical assessment by service companies, with the index figure falling by more than three points in this segment. The French rail strike appears to have left its mark on corporate sentiment here. On the other hand, sentiment in the manufacturing sector has picked up again. The comparatively good level and the gap in relation to the neutral mark of 50 index points suggest, however, that economic growth will continue, albeit at a still moderate pace.



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