MNI 5 Things: EZ Aug PMIs Point To Steady Economic Expansion

By Jai Lakhani

     LONDON (MNI) - The Eurozone flash composite PMI was released on Thursday,

with the index firming marginally to of 54.4 from 54.3 in July. Here are five

things we learned from the release:

     1. Composite PMI Ticks Higher But Remains Substantially Below 2017 Highs:

While the marginal increase in the Eurozone Composite PMI in August is no doubt

a positive development, the index continues to undershoot the recent highs it

enjoyed in 2017. Nevertheless, it remains firmly in expansionary territory and

indicative of quarterly GDP growth staying steady in Q3, or potentially picking

up a touch from Q2's 0.4%. The overall rise in the composite PMI was driven by

faster output growth (albeit the third-weakest since January 2017) and a tepid

increase in new order growth, which registered at the third-weakest rate since

December 2016.

     2. Manufacturing Continues to Weigh On Composite PMI: The Eurozone

manufacturing PMI fell to 21-month low of 54.6 in August, down from 55.1 in

July. New export orders registered the smallest monthly rise for two years.

Whilst the overall volume of orders received but not yet completed continued its

rise, it did so at the weakest rate for 19 months. Backlogs also rose by the

smallest level for just over three years. Putting all of these developments

together means that it is not surprising to see optimism in the sector having

fallen to a 34-month low.

     3. France Sees Further Expansion But Below Recent Peaks: The rate of growth

of private sector activity in France hit a four-month high in August, bolstered

by both manufacturing and services. Whilst inflows of new business picked up

pace, growth remained well below the peaks seen earlier in the year, especially

for goods exports, and the third quarter looks on course to be the weakest in

terms of output growth since 2016.

     4. Strength in Germany and France Offset By Slowdown In Growth In Rest Of

Bloc: The rate of growth in Germany's private sector was the fastest since

February, suggesting that q/q GDP growth in Q3 could accelerate from Q2's 0.5%.

The improvement was driven by stronger service sector activity, which offset

softer growth in manufacturing sector activity. In contrast to the stronger

picture coming from Germany and France -- the Eurozone's two largest economies

-- private sector activity growth slowed across the rest of the single currency

area, thus constraining the overall gain in the Eurozone-wide composite PMI.

     5. Businesses Concerned For The Future: Companies' expectations of future

private sector activity growth slipped to the lowest for nearly two years. The

softening in confidence was pronounced in France, where the combined measure for

both sectors dropped to a 21-month low. Anecdotal evidence suggests that

business sentiment has been hurt by a near-stalling of manufacturing exports

linked to escalating trade war worries, as well as geopolitical concerns and

higher input costs.

     Chris Williamson, Chief Business Economist at IHS Markit, commented:

"Warning lights are flashing. Analysis of past data indicates that demand needs

to pick up to sustain current output and employment growth in coming months. Yet

the risks seem tilted to the downside."

     BONUS. Price Pressures Remain Elevated But At 3-Month Low: Price pressures

remain elevated, stoked by higher wages in some countries alongside increased

fuel, transport and commodity prices. The input cost and selling price inflation

sub-indices remained amongst the highest levels seen over the past seven years,

despite registering at three-month lows.

--MNI London Bureau; +44 203 865 3828; email: jai.lakhani@marketnews.com

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