Growth to remain below the trend rate in Q4 – Recent surveys indicate that eurozone GDP growth will have remained below the trend rate in Q4. To start with, the composite PMI declined to 52.4 in November, down from 53.1 in October. As a result it reached its lowest level since the end of 2014. The forward looking elements of the PMI report also fell in November. Indeed the manufacturing new orders index (which has fallen non-stop in every month since the start of the year) dropped by 0.7 points to 48.9, while the services new business index fell by 0.6 points to 53.1. As an additional sign of weakness, the PMI’s employment index fell by 1.1 point to 53.6, signally softening employment growth in the coming quarters. All in all, at its current level the PMI is consistent with GDP growth of around 0.2-0.3% qoq, which is somewhat below the trend rate of around 0.3-0.4%.
Besides the eurozone PMI, Germany’s Ifo business climate indicator dropped as well in November. The Ifo expectations index (which is the best tracker of GDP growth in the Ifo report) staged its third consecutive monthly decline and fell from 99.7 to 98.7, which is only a bit above the long term average value. It suggests that Germany’s GDP growth, which came in at -0.2% qoq in Q3 due to temporary problems in the car industry, bounced back in Q4, but nonetheless remained somewhat below the 0.5% growth rate that was recorded in Q2. We think that the declines in the eurozone PMI and Germany’s Ifo index are in line with our below-consensus growth forecast for the eurozone economy.