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Fig.1 Euro-zone: Services lead the upturn in activity, while the manufacturing sector continues to lag behind.
- Composite, 50% spread
- Services, 50% spread
- Manufacturing, 50% spread
In the recovery of the Euro Zone indicated by the PMIs, it is important to highlight the continuing upturn in activity in Germany and France. However, this is essentially driven by services. The manufacturing sector is still struggling. According to the survey, activity in France contracted more in April than in the previous month. In Germany, the contraction in industry is continuing at more or less the same pace.
We all know that weakness in industry is a global phenomenon, but the situation in Europe stands out for the weakness of demand for its products. In this sense, the start of monetary easing could help to stimulate demand, particularly investment.
Fig.2 Euro-Zone: In Germany, as in France, activity in the manufacturing sector remains mediocre.
- France (spread at 50)
- Germany (gap at 50)
This is in stark contrast to activity in the services sector, which recovered strongly in April. In France and Germany, the services index returned to levels not seen for almost a year. In Germany, the upturn was particularly remarkable, with the index showing a sharp expansion in activity. In France, the recovery is also there, but activity seems to be regaining momentum more moderately.
Nevertheless, as the survey indicates in both countries, price pressures are still very much with us.
Fig.3 Euro-Zone: Services are leading the recovery, with a remarkable surge in Germany,
while in France activity is finally moving into expansion territory.
- France (spread at 50)
- Germany (gap at 50)
Across the Atlantic, S&P's PMI survey came as a negative surprise. In fact, it showed a marked loss of momentum in activity at the start of the second quarter in both sectors, albeit to a greater extent in manufacturing.
This contrasts with the good momentum seen since the start of the year. The survey reveals that a deterioration in demand is the main cause of this weakening in activity. According to the survey, the deterioration in business activity has led companies in some sectors to start cutting back their workforce quite sharply.
Fig.4 United States: According to S&P's preliminary survey for April,
activity in both services and manufacturing slowed markedly.
- PMI Markit composite
- Services
- Manufacturing
At the same time, this more difficult environment is likely to result in less pressure on costs, particularly in services. This seems surprising, given that the labour market remains tight, even if wages are slowing. On the other hand, in the manufacturing sector, it would appear that price pressures have increased, notably as a result of higher input costs.
If price pressures in services are indeed easing more quickly, this would be good news for the Fed, particularly if it is accompanied by a gradual deceleration in activity.
However, we will have to see whether the ISM surveys at the beginning of May confirm this slowing trend and, above all, whether the forthcoming price statistics confirm a greater moderation in price growth than we have seen since the start of the year.