The diverging fortunes of the euro area economy
Europe's manufacturing and services sector are at opposite ends, leaving for a cloudy economic outlook
Although French and German manufacturing PMIs improved in the month of June, Germany's reading reaffirmed a sixth straight month of contraction (reading below 50.0) and that downbeat sentiment in manufacturing/factory activity is also seen spreading to other countries in the euro area.
That continues to keep the overall Eurozone reading also in contraction territory and it tells a completely different tale to what the services sector is saying.
Domestic demand in most nations remain robust and that has been a key factor in lifting services sector sentiment in the region but for how long can this keep up? With the global economy continuing to slow down, you have to figure it'll only be a matter of time before we'll see softer conditions in this sector.
Digging deeper into the services PMI reports earlier, we can see that in Germany, the survey's only sentiment-based forward-looking indicator i.e. business expectations actually fell to its lowest level since October 2015.
If anything else, that tells us that there are growing concerns among service providers and that the increasing worries from the manufacturing sector is starting to be felt elsewhere in other parts of the economy.
With global trade tensions still elevated and a US-China trade deal not looking imminent, the outlook for the euro area economy remains bleak as there isn't much good news for the manufacturing sector. And if the soggy sentiment starts spilling over into the services sector more profoundly down the road, expect more chatter about a Eurozone recession to follow in the coming months.
Reprinted from Forexlive，the copyright all reserved by the original author.
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