Euro area flash composite PMI indices fall in March, imply softness in overall economic activity

The March Euro area flash PMI came in below expectations, implying that the overall economic activity continues to be weak at the best. The composite PMI, which combines the manufacturing and services surveys, dropped to 51.3 from 51.9. The first quarter results as a whole point to modest GDP growth of 0.1 percent to 0.2 percent, basically the same as the second half of 2018 and significantly softer than 0.4 percent in the first half of 2018 and 0.7 percent in 2017, noted Lloyds Bank in a research report. It confirms that the deceleration in euro area activity is much more protracted than had initially been expected.

The euro area manufacturing PMI dropped for an eighth straight month to 47.6 from 49.3. Particularly concerning is another big fall in the German manufacturing PMI to 44.7 from 47.6, the lowest level since 2012 during European debt crisis. The export orders component, especially, dropped to just 39.5, reflecting softening global demand. The French manufacturing PMI also dropped to 49.8 from 51.5.

Slight comfort came from the euro area services PMI, which greatly remained at the last month’s unexpectedly positive outturn. The headline index was slightly softer at 52.7 from 52.8. The German Services PMI stayed at a comparatively healthy level in spite of falling to 54.9 from 55.3. This might be sufficient for the economy to avoid contraction in the first quarter. Nevertheless, the French services PMI disappointed on the downside, dropping to 48.7. Overall, the PMI survey indicates towards a deceleration after 0.3 percent growth in the fourth quarter.

Today’s reports confirm the ECB’s March economic forecasts that indicated the loss of economic momentum continuing into the first quarter of this year. This has already led policymakers to signal no interest rate hike until next year.

“Those economic forecasts also pointed to tentative hopes that Eurozone growth improves gradually from Q2 onwards (0.3 percent q/q in Q2 and 0.4 percent q/q thereafter). We’re not really at a stage yet where the net asset purchase programme (QE) is likely to be restarted, but there’s a risk that policymakers will be disappointed on growth again”, added Lloyds Bank.

At 12:00 GMT the FxWirePro's Hourly Strength Index of Euro was highly bearish at -145.632 while the FxWirePro's Hourly Strength Index of US Dollar was neutral at 25.9535 more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex