* The Eurozone composite PMI increased to 56.3 in January 2011
pulled by strong services PMI numbers. The manufacturing PMI
decreased slightly but remained at a high level.
* The rebound continues to be pulled by Germany where the service
sector is taking over. This indicates that households are starting
to move and hence that the recovery is maturing. German GDP grew
at a 3.6% rate in 2010, the fastest growth in more than two
decades. We project German GDP growth at 2.7% in 2011.
* Our PMI model signals that eurozone manufacturing PMI could be as
high as 58 in May. This is comforting, especially with the new
support from the improvement in services PMI. Today's strong
figures support our call for eurozone GDP growth of 2.0% in 2011.
The main risk remains a renewed escalation of the debt crisis.
* Both Ifo expectations and ZEW figures surprised on the upside last
week, supporting the outlook for Germany to remain the Euroland
growth locomotive in 2011.
*Details and outlook*
The eurozone composite PMI increased to 56.3 in January 2011 from 55.5
in December 2010, driven by a sharp increase in services PMI from 54.2
in December to 55.2 in January. This indicates that the recovery is
maturing and that private consumption should contribute more to this
year's growth. The manufacturing PMI decreased slightly from 57.1 to
56.9, still a very high level. The strong figures signal GDP growth of
3-3.5% q/q annualized in Q1, though we expect growth to come out
lower.
Both in France and Germany, today's PMI release signals that activity
is rotating from manufacturing towards services. This shift is a good
sign that the recovery is changing from being mainly driven by exports
to also including increased demand from domestic households. However,
the downturn in today's manufacturing PMI was a bit abrupt. Despite
the slightly disappointing manufacturing figures, though, the
composite index increased in both Germany and France, from 59.7 and
55.3, respectively, in December to 61.0 and 56.9, respectively, in
January.
The strong Euroland composite PMI continued to be pulled by Germany,
with composite PMI increasing from 59.7 to 61.0 - the second-highest
level ever. PMI composite new orders, at 56.1 (up from 55.2), were an
all-time high. The increase was driven by the service industry.
Looking at the subcomponents in the German service sector, we see that
future business expectations increased to 66.2 - the highest level
since 2003. Incoming new business also rose sharply, while employment
expectations and prices fell.
The French manufacturing PMI disappointed slightly, down from 57.2 to
54.3 while the service sector showed further improvement from 54.9 to
57.1. Employment expectations in manufacturing fell quite sharply
below 50, indicating that job creation in French industry has paused.
Manufacturing saw a sharp decline in new orders, export orders and the
volume of purchases. The increase in service sector PMI was primarily
driven by an improvement in incoming new business and a small increase
in future business expectations. Service sector employment fell to
just above 50.
Our PMI model signals some short-term softness, but indicates that
eurozone manufacturing PMI could be as high as 58.0 in June. This is
comforting, especially in the light of today's increase in services
PMI. Today's strong figures support our call for eurozone GDP growth
of 2.0% in 2011. The main risk remains a renewed escalation of the
debt crisis.
Both Ifo expectations and ZEW figures surprised on the upside last
week, supporting the positive outlook for Germany to remain the
Euroland growth locomotive in 2011.
Source: ActionForex.Com
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