Euro area's manufacturing PMI to soften; services PMI to strengthen

The euro area manufacturing PMI is expected to soften from 52.0 to 51.8 in May. On the other hand, the PMI for the services sector should marginally increase from 54.1 to 54.3. Historically, such PMI levels (for both the manufacturing and services sectors) have been consistent with GDP growth of close to 0.4%. This is in line with the forecast of Q2 15 growth of 0.4%. Societe Generale therefore expects PMIs to hover around current levels in the coming months.

The improvement in PMIs observed since last Autumn stems mostly from the services sector rather than the manufacturing sector. This is because household consumption has been highly supportive of services activities, but corporate spending and export growth have taken time to respond to the positives of a lower oil price and weaker euro. 

Analysts expect the trend of a strengthening services sector and a slightly softening manufacturing sector to continue in May, in particular since the euro and oil prices have rebounded. In previous months, increases in manufacturing PMIs have been driven mostly by domestic demand rather than export growth. Therefore, since this driver has become less prominent, the result should be a lower manufacturing PMI. 

"Regarding the services sector, analysts view is that businesses are still uncertain as to whether the green shoots of the current cyclical recovery can translate into structural and sustainable growth. The improvement in domestic demand will start easing in late Q2 due to the recent rebound in the oil price, thus weighing on the services PMI" says Societe Generale.

Looking at the regional breakdown, the German manufacturing PMI should slow from 52.1 to 51.9, while the services sector PMI should fall from 54.0 to 53.6. The French manufacturing PMI is expected to increase slightly from 48.0 to 48.2 (which would reflect a catching up from surprisingly low levels), while the services PMI is predicted to increase from 51.4 to 51.9, mirroring the improvement observed in the Bank of France survey.