Last week, the publication of GDP data for the second quarter of 2014 disappointed widely, especially in the largest countries of the Eurozone (see Eco-Flash 14-188, Stagnation and deflation risk, 14th August). On a quarterly basis, GDP stagnated in the Eurozone as a whole and in France (for the second consecutive quarter in the latter), and slightly decreased in Italy and in Germany. Today, the releases of Purchasing Managers’ surveys conducted in August send mixed signals regarding the evolution of activity in Q3.
In the Eurozone, the composite output PMI index lost in August the whole point it gained in July. It fell to 52.8, a level consistent with GDP growth well above zero recorded in Q2 though, around 0.3% q/q according to Markit. The surveys suggest that the deceleration in activity was widespread, but significantly larger in industry than in services. In the latter, the business activity index fell by less than a point and remained at a still comfortable level of 53.5. In the manufacturing sector, however, the output index, after stabilizing in July, started again to lose substantial ground. It fell by almost two points in August, and, at 50.9, suggests output is hardly increasing in that sector.
In Germany especially, manufacturing activity and business climate is likely to be badly hit by increasing geopolitical tensions, and especially by sanctions against Russia. The manufacturing output index fell to a 14-month low, indicating that activity is rapidly losing momentum. The composite index however remained strong, well above the Eurozone average, at 54.9, meaning, that, despite the sharp deceleration observed in Q2 (y-o-y GDP growth fell from 2.2% in Q1 to 1.3%), the country still remains the first engine of Eurozone activity.
BY Frédérique CERISIER