Weak European Services Output Casts Shadow Over Economic Outlook
Worst of German Factory Slump May Be Past as Confidence Improves
(Bloomberg) --
Europe’s economy took a step back in November even as German manufacturers shook off some of the crippling slump that’s dented growth.
A key survey of German factory activity rose more than economists expected to a five-month high. While the gauge still signals contraction, the second straight improvement was accompanied by a pickup in business confidence for the year ahead.
The big worry in the Purchasing Managers Indexes released Friday was euro-area services, which suggested weakness is spreading to elsewhere in the region. The euro, which was higher after French and German reports, reversed course after the euro-wide figures.
The mixed readings bears out the view that while Europe’s slowdown may have stabilized, it’s more likely to trundle along at a very slow pace for some time rather than see any near-term pickup. Growth is forecast to be stuck around 1% a year into 2020, with Germany even weaker.
While Europe’s largest economy narrowly avoided a technical recession this year, the poor outlook means its government is still likely to face calls to pump in fiscal stimulus.
The factory PMI rose to 43.8 from 42.1, while services slipped to 51.3 from 51.6, where 50 divides expansion from contraction. France’s services measure was unchanged, but the euro-area one dropped to a 10-month low of 51.5 from 52.2.
“Tentative signs of life in the core euro zone countries of France and Germany are welcome news, as is an easing in the manufacturing downturn,” said Chris Williamson, an economist at Markit. “But a fresh concern is that the rest of the region has slipped into decline for the first time since 2013.”
The euro was little changed at $1.09 as of 10:56 a.m. Frankfurt time, having earlier been as high as $1.1087.
The latest snapshot of the economy arrived as European Central Bank President Christine Lagarde was delivering a speech on the future of the euro-area economy. She called for a new policy mix for Europe to ensure the economy will thrive in an increasingly uncertain global situation.
What Bloomberg’s Economists Say...
“A small decline in the November flash composite PMI will offer ECB policy makers new causes for concern as they try to judge whether the euro area is at last exiting its protracted soft patch... The risk of spillover from manufacturers to the much larger services sector remains heightened.”
--Maeva Cousin. Click here for more.
German data earlier on Friday showed household and government spending as well as exports supported the economy in the third quarter. That was enough to offset the biggest drop in machinery and equipment investment in more than six years and help the economy register 0.1% growth.
For the euro area, expectations about future output remained low -- thanks to Brexit and trade tensions -- though they did improve to a four-month high. That said, falling demand meant employment growth slowed for a fifth month. If that trend continues, it could fuel weakness in consumer spending, a key pillar.
“Without some of these threats off the table, it is tough to see the euro zone rebounding in the coming months,” said Bert Colijn, an economist at ING. “The winter months will, therefore, be a nail biter.”
--With assistance from Simbarashe Gumbo and Mark Evans.
To contact the reporters on this story: Fergal O'Brien in Zurich at fobrien@bloomberg.net;Piotr Skolimowski in Frankfurt at pskolimowski@bloomberg.net
To contact the editors responsible for this story: Craig Stirling at cstirling1@bloomberg.net, Brian Swint, Zoe Schneeweiss
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