The small upward revision to the euro-zone’s Composite PMI for February still leaves it consistent with another contraction in GDP in Q1. And while Italy’s PMI rose above the 50-mark, that is unlikely to be sustained given that a rise in virus cases there is prompting the government to tighten restrictions again.
Activity still very weak
- The small upward revision to the euro-zone’s Composite PMI for February still leaves it consistent with another contraction in GDP in Q1. And while Italy’s PMI rose above the 50-mark, that is unlikely to be sustained given that a rise in virus cases there is prompting the government to tighten restrictions again.
- February’s euro-zone Composite PMI was revised up from the flash release, to 48.8, and was an improvement on January’s 47.8. On past form, the PMI points to only a small fall in year-on-year euro-zone GDP growth in Q1 (see Chart 1), which would require a quarterly increase in GDP. But the relationship between the PMI and GDP growth has been much less reliable over the past year and, with other data suggesting a weak start to the year, we still think GDP is likely to contract in Q1. What is clear, though, in both the PMIs and the hard data, is the divergence between industry and services. (See Chart 2.)
- Among the major euro-zone economies, Italy’s Composite PMI has improved the most so far this year, rising to a seven-month high of 51.4 in February. (See Chart 3.) This is unsurprising given the loosening of restrictions at the start of this month. But new infections are rising again and measures are being re-tightened in some regions. So March’s PMI is likely to be weaker.
- Meanwhile, Spain’s Composite PMI improved a little in February, but at just 45.1 remained lower than in the other major countries. (See Chart 4.) This is entirely due to depressed activity in the services sector; the manufacturing output PMI recovered to above the 50-level after January’s snowstorm. Services firms are facing higher input costs, but weak demand has meant they have been unable to pass them on to customers.
- All told, today’s data confirm that euro-zone activity has remained very weak in early 2021. What’s more, the slow vaccine rollout and rising case numbers in France and Italy means that the lifting of restrictions is likely to be delayed, pushing much of the vaccine-related bounce in activity into Q3. (See here.)
Chart 1: Euro-zone Composite PMI & GDP
Chart 2: Euro-zone Mfg Output & Services PMIs
Chart 3: Composite PMIs
Chart 4: Services PMIs
Sources: Refinitiv, Markit
Jessica Hinds, Europe Economist, firstname.lastname@example.org