Euro area purchasing managers remain in good spirits

The preliminary publication of the results of the survey of purchasing managers in the EMU paints an optimistic overall picture of sentiment. Although the aggregated Composite Index was down slightly from 54.4 to 54.3 index points, this still leaves it significantly above the full-year average of 53.3 points. The index for the service sector shed 0.1 points and is now at 53.6 points. The sentiment barometer for manufacturing industry rose, by contrast, from 54.9 to 55.1 ticks. According to the survey institute IHS Markit, the better performance in industry is due to a significant increase in incoming orders from abroad. Overall, the hiring intentions in both sectors were higher than at any time since February 2008. Ultimately, this reflects the exceptionally optimistic assessment of the business outlook among the polled purchasing managers. But the increasing price pressure caused by higher commodity prices and the weaker euro exchange rate against the US dollar remain a fly in the ointment.

In Germany the comprehensive Composite Index fell slightly from 55.2 to 54.7. While the service sector faltered – the sentiment barometer dropped from 54.3 to 53.2 ticks – manufacturing industry was in the best of moods. At 56.5 points after 55.6 points in the previous month the purchasing managers‘ index is higher than at any time during the past 36 months. The purchasing managers said that a significant increase in orders and capacity bottlenecks in manufacturing industry were stoking industrial output whereas purchasing managers in the service sector said that orders and business activity were less strong but still robust. Higher oil and commodity prices caused price pressure to increase, but it was only possible to pass on a small part of this price pressure into selling prices.

The survey findings for France showed an improvement. Although the index for manufacturing industry was down a slight 0.1 index points to 53.4 ticks, it has now already been above the expansion threshold for the fifth consecutive month. Among French service providers the sentiment barometer rose steeply, up from 52.9 points to 53.9 ticks. As a result the comprehensive Composite Index improved from 53.1 to 53.8 index points. So sentiment remains good in the French private sector at the beginning of 2017, driven by a robust rise in incoming orders and increased hiring intentions. The estimates of the business outlook for the coming twelve months also remained high even though they are assessed as being slightly weaker than was the case in December. This paves the way for a continued economic recovery in France.

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