Euroland sentiment: Germany slightly improves, France loses further ground

This is not what a good start to 2019 looks like. The sentiment barometers provided in the form of the January purchasing manager indices suggest that there has only been a slight dampening in Euroland as a whole and could overall be best described with the words “cautiously confident”. However, a whole series of tangible risks are currently suppressing any possible flickering of the flame of optimism. There is firstly the concern about a “hard Brexit” happening by mistake, then the new EU exhaust emission regulations, the diesel scandal, which has not yet been forgotten, the ongoing smouldering US trade dispute, and the fact that the global economy can be seen to be cooling down. It is therefore not surprising that sentiment has dimmed further in January. The overall index, the so-called composite purchasing manager index, has slipped 0.4 points and is now running at 50.7 points – sentiment thus remains restrained, which points to weak economic growth.


In Germany, following the weak economic data in H2 2018 hopes remain that sentiment will soon change for the better. In the wake of the purchasing manager survey results for January it at least looks like the economy is pausing to gather breath. The “composite” index actually rose 0.5 points and now comes to 52.1 points, which is, however, a figure that speaks more in favour of muted economic growth. A glance at the details reveals a mixed bunch, too. While sentiment in industry has plummeted a sharp 1.6 to 49.9 points (a 50-month low), service sector sentiment (January: 53.1; December: 51.8) has bucked precisely that trend. The main reasons for the noticeable decline in manufacturing sentiment, or so those polled say, continues to be the weak car industry and dwindling demand from China. For 2019 as a whole we foresee moderate economic growth of about 1% on the year.


By contrast, in France the first month of the year has seen private-sector uncertainty clearly increase further, having already been weak the prior month. However, here it was less industry that contributed to the meagre picture, having suffered in previous months from the yellow vest protests. In manufacturing, going by the purchasing manager indices, sentiment is now actually slightly better than in Germany. In France, this time it is sentiment in the important service sector that has plunged. Compared with December 2018 alone, sentiment has dropped a massive 1.5 points, to land at a level of 47.5 points, meaning visibly below the “growth threshold” of 50 points. This served to drag the overall composite index down further, too. In other words, the new year has started anything but confidently, at least for French purchasing managers. We assume a similarly weak growth picture for the remainder of the year, namely plus 1.1% on the year.


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