Europe’s Economy Flatlines For 3rd Month As Feeble Bounce In German Factory Activity Overshadowed By Services Spillover

Friday is PMI day, and there was good news and bad news from Europe on that front.

The good news is, Germany’s manufacturing slump appears to be abating, although it’s far too early to call it an “inflection”.

The BME and IHS Markit manufacturing PMI for the world’s fourth-largest economy printed 43.8 in the flash read for November. Believe it or not, that’s what counts as “good” these days. Consensus was looking for 42.8. The range was 41 to 45. Although it marked the eleventh straight month in contraction, it was the highest read since June. New orders rose to 44.4, the best print since January.

At the same time, there were disconcerting signs of spillover to the services sector. Germany’s services PMI fell to 51.3 in November. That’s a 38-month low.

“While still showing a degree of resilience, the service sector is growing only modestly and at its slowest rate for over three years”, Phil Smith, Principal Economist at IHS Markit said. “By contrast, manufacturing remains firmly in contraction, but many of the indicators here are at least moving in the right direction and it would seem the worst of the downturn is over barring any shocks”.

Earlier this week, the BDI industry association said it sees manufacturing production in Germany falling 4% in 2019, a remarkable downgrade from the previous forecast for 0%.

Read more: And Now, For Another Dismal, Depressing, Dreary Projection Out Of Germany…

Panning out to the eurozone as a whole, the numbers are not inspiring. The flash read on the Eurozone composite PMI is 50.3 for November, lower than estimates. The manufacturing gauge beat, but just barely (46.6 versus consensus of 46.4) and, most notably, services disappointed, coming in at just 51.5 (a 10-month low) against consensus of 52.4.

This marks the third straight month that the composite gauge has shown the bloc’s economy in stagnation.

“Weak output growth reflected a third successive monthly decline in new orders for goods and services, albeit with the rate of decline easing slightly for a second month running to register only a marginal drop in demand”, IHS Markit said. “The ongoing decline nevertheless represents the worst spell of demand since mid-2013”.

This ostensibly underscores the case for ECB accommodation, and minutes from the October meeting (released on Thursday) showed policymakers pointing to the data as having validated the controversial decision to come out swinging with a big easing package in September.

And yet, the central bank continues to make the case for fiscal policy to take the baton as Christine Lagarde steps into Mario Draghi’s shoes.

“All else being equal, the more that fiscal policy contributed to boosting long-term growth potential and providing cyclical stabilisation, the sooner the effects of monetary policy interventions on inflation and the economy would be seen”, the account of the meeting reads.

“Manufacturing remains in its deepest downturn for six years amid ongoing trade woes, and November saw further signs of the weakness spilling over to services, notably via slower employment growth”, Chris Williamson, Chief Business Economist at IHS Markit, remarked on Friday. “Resilient jobs growth had provided a key support to the more domestically-focused service sector earlier in the year, but with employment now rising at its slowest pace since early-2015, it’s not surprising to see the service sector now also struggling”.

It doesn’t help the outlook that the Trump administration is said to be pondering a 301 probe.

Read more: Trump May Launch ‘Sweeping’ 301 Trade Probe Against Europe

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