Key takeaways
The pace of recovery of the Eurozone economy following its sharp contraction in 2Q 2020 slowed down significantly in August. The Eurozone PMI Composite Index came up at 51.9, still largely in positive territory but significantly down from the 54.9 level reached in July. The Manufacturing Index remained on a healthy recovery trajectory thanks to the strong rebound observed in Germany (cf. our Macro Flash on German Manufacturing PMI) and despite the stagnation observed in France. However, the Services headline index came almost flat at 50.5, due to a marked growth slowdown in France and a return to contraction in Italy and Spain. Regardless of the softness observed in the Services sector, Confidence about the future continued to peak up reaching its highest level in two years. This confidence will need to be supported by additional monetary and fiscal stimulus, else it could fade out. Indeed, Eurozone prices moved into negative territory for the first time since May 2016 with a flash estimate of headline inflation coming at -0.2 in August (vs. consensus at +0.2). Unemployment continued to increase across the Eurozone which bodes ill for domestic demand in the upcoming months, all the more as there was a record growth in savings for precautionary motives.
Detailed Analysis
Eurozone Composite PMI for August IHS Markit)
Composite Index
| Output | New Business | New Export Business | Outstanding Business | Employ- ment | Input Prices | Prices Charged | Future Output | |
|---|---|---|---|---|---|---|---|---|
| 03/20 | 29.7 | 27.7 | 34.6 | 38.5 | 42.2 | 48.2 | 45.8 | 34.7 |
| 04/20 | 13.6 | 13.6 | 17.6 | 25.9 | 33.4 | 44.5 | 41.7 | 34.9 |
| 05/20 | 31.9 | 29.7 | 27.9 | 34.6 | 37.8 | 46.4 | 44.0 | 46.8 |
| 06/20 | 48.5 | 47.0 | 41.7 | 44.5 | 43.2 | 50.3 | 46.4 | 56.9 |
| 07/20 | 54.9 | 52.7 | 49.1 | 48.8 | 46.5 | 51.1 | 48.1 | 59.3 |
| 08/20 | 51.9 | 51.3 | 48.8 | 48.0 | 46.8 | 52.5 | 48.5 | 57.8 |
Output and demand
Employment
Manufacturing index
| PMI | Output | New Orders | New Export Orders | Backlogs of orders | Employ- ment | Input Prices | Output Prices | Future Output | |
|---|---|---|---|---|---|---|---|---|---|
| 03/20 | 44.5 | 38.5 | 37.5 | 37.0 | 43.5 | 44.3 | 44.2 | 47.2 | 38.0 |
| 04/20 | 33.4 | 18.1 | 18.8 | 18.9 | 30.5 | 35.8 | 44.6 | 45.8 | 36.6 |
| 05/20 | 39.4 | 35.6 | 29.4 | 28.7 | 33.5 | 37.6 | 43.0 | 45.8 | 44.6 |
| 06/20 | 47.4 | 48.9 | 46.5 | 43.1 | 41.9 | 41.3 | 45.1 | 46.6 | 57.3 |
| 07/20 | 51.8 | 55.3 | 56.1 | 51.8 | 49.6 | 42.9 | 47.5 | 49.0 | 58.8 |
| 08/20 | 51.7 | 55.6 | 55.4 | 51.9 | 50.4 | 44.2 | 50.1 | 49.4 | 61.5 |
Services index
| Output | New Business | New Export Business | Outstanding Business | Employ- ment | Input Prices | Prices Charged | Future Output | |
|---|---|---|---|---|---|---|---|---|
| 03/20 | 26.4 | 24.0 | 28.4 | 36.5 | 41.4 | 49.7 | 45.3 | 33.5 |
| 04/20 | 12.0 | 11.7 | 14.2 | 24.2 | 32.6 | 44.5 | 40.2 | 34.3 |
| 05/20 | 30.5 | 29.9 | 26.1 | 35.0 | 37.9 | 47.7 | 43.3 | 47.6 |
| 06/20 | 48.3 | 47.2 | 38.1 | 45.4 | 43.9 | 52.2 | 46.3 | 56.7 |
| 07/20 | 54.7 | 51.4 | 42.2 | 48.5 | 47.9 | 52.5 | 47.8 | 59.4 |
| 08/20 | 50.5 | 49.8 | 40.7 | 47.2 | 47.8 | 53.4 | 48.2 | 56.5 |
Eurozone inflation (Flash estimate): below 0% in August
Euro area annual inflation is expected to be -0.2 % in August 2020 according to the preliminary “Flash” estimate, down from 0.4 % in July 2020
The two main core inflation measures decelerated sharply. Core inflation excluding energy, food, alcohol and tobacco, fell from 1.2 percent to just 0.4 percent. Core inflation omitting just energy and unprocessed food fell down 0.7 percentage points at 0.6 percent.
