Eurozone PMIs are showing very tentative signs of a possible bottom.

bert collin

How to read today’s Eurozone PMI release will tell you whether you are an optimist or a pessimist. The January composite PMI increase from 47.6 to 47.9 provides a cautious sign. It bottoms out but still shows contraction. We also note that PMIs have declined in France and Germany, making PMI increases dependent on smaller markets. Manufacturing price pressures remain moderate despite the Red Sea turmoil, while the services sector indicates another acceleration in input costs.

To us, this shows that the eurozone economy is still in a general recession and inflation risks are not small enough to expect an ECB rate cut before June.

The euro zone continues to struggle with lower demand for goods and services, although the pace of decline in new orders has been slower than in recent years. month. However, current production and activity have been weaker than in recent months, suggesting that January still started with lower production. But the slowing pace of order signing suggests a bottom may be in sight. Whether this will be enough to see positive GDP growth in the first quarter will depend on February and March. In any case, GDP growth is so close to zero that the current environment is still considered a widespread recession anyway.

PMI continues to indicate concerns about inflation. Demand remains sluggish, but pressure on service costs is growing again as wage costs are passed on to consumers. Cost pressures on the commodity side remain low despite the Red Sea disruption, as energy prices are lower and overall demand remains weak. This also means that commodity inflation continues to trend downward, according to the survey. So, despite the Red Sea issue being featured prominently in the news, interestingly, current inflation concerns arise more from services than from goods.

There remain concerns for the ECB that inflation will not fall to 2% quickly enough. We believe this makes it unlikely that the first cuts will be made before June.

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