Euro area: Despite a better than expected PMI survey, the recession is likely to deepen in Q4

Despite a softer contraction than anticipated in the manufacturing sector, today’s PMI data are still in negative territory. As a result, the entry point in the fourth quarter is very low. So today’s release tends to confirm our scenario of a sharper GDP contraction in Q4 than the -0.1% q-o-q recorded in Q3.

The flash euro area manufacturing PMI rose from 45.4 in October to 46.2 in November, well above consensus expectations (45.6). In contrast, the euro area flash services PMI fell further into contraction territory to 45.7 from 46.0 in October, its lowest since July 2009. As a result, the flash composite PMI which is an aggregate of both sectors, increased slightly by one-tenth to 45.8 in November, in line with expectations.

New export orders improved for the third month running
The 0.8 point increase in the euro area flash manufacturing PMI is across the board, with new orders and employment all improving. In addition, it is worth noting that the new export orders component improved for the third month in a row. Nevertheless, all these components are well entrenched in negative territory, so conditions are slowly improving but the euro area manufacturing activity is still in recession.

German and French manufacturing PMI index improved
In terms of country, German and French flash manufacturing PMI improved in November, well above consensus expectations. Indeed, in Germany the November flash manufacturing PMI rose from 46.0 in October to 46.8, while in France the index increased by one point to 44.7 in November. So, today’s release tends to confirm again that the pace of contraction is progressively softening.

Gloomier sentiment in services
In the services sector, the sentiment appears more gloomy than in the manufacturing sector as all the components are deteriorating compared to the previous month. In particular, the business expectations component decreased for the third month running, reaching its lowest level since March 2009. In terms of country, the French index posted a 1.5 point increase while the German index decreased slightly.


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