Euro area flash PMI indices fall in February, financial markets impact economic sentiment

The euphoric mood in the euro area economy is likely to have been dampened by the abrupt end of the long period of nonchalance on the financial markets. The purchasing managers’ index for manufacturing for the euro area dropped 1.1 points to 58.5 in the month of February. Meanwhile, the index for service sector fell to 56.7 from 58. However, today’s data does not hint at an end to the euro area’s economic upswing.

The recent nervousness on the financial markets also appears to be impacting the economic confidence. This has been implied via the fall of the purchasing managers’ indices in February. Even if only hard facts such as current production, orders and employment are surveyed in the purchasing managers’ indices, there have been sharp setbacks on the financial markets and political crises in the past that impact on responses, noted Commerzbank in a research report. The fall might be even larger in the national business climate indices for Germany and France.

However, the setback in the purchasing managers’ indices is hardly a sign for an imminent end to the economic upswing in the euro area. At 58.5, the manufacturing index remains to be at a very high level by past standards. And the purchasing managers’ index for the service sector remains at an average level of 57.3.

“We therefore see no grounds to revise downwards our growth estimate for Q1 2018 of 0.6 percent on the previous quarter”, noted Commerzbank.

The upswing in the euro area might only be at risk if the ECB were to hike interest rates. However, there is no sign of this this. Given the subdued underlying inflation, which is not likely to bolster on a lasting basis in 2018 either, the initial small rise of the deposit rate by 0.1 percentage point is expected at around mid-2019 at the earliest, added Commerzbank.

At 12:00 GMT the FxWirePro's Hourly Strength Index of Euro was neutral at -48.9264, while the FxWirePro's Hourly Strength Index of US Dollar was bullish at 83.2126. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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