Euro Macro: Rise in eurozone PMI due to France, but German PMI will likely weaken next month – The eurozone composite PMI came in stronger than expected in December. The index increased to 49.8, up from 45.3 in November. The details of the report show that the main factor behind the rise in the eurozone composite PMI was a sharp jump in France’s services sector PMI, which gained more than 10 points and reached 49.2. This seems to have been due to the re-opening of non-essential shops, that were instructed to close during the month of November (when France’s services PMI dropped by 8 points) and were allowed to re-open at the end of the month. In contrast, the recent announcement of the tightening of the lockdown measures in Germany (non-essential shops need to be closed from 16 December until at least 10 January) does not seem to have affected Germany’s services sector PMI yet, as it actually increased by 1.7 points in December. The PMI survey in Germany was held from 4-15 December and it seems that the closure of non-essential shops was not yet captured in the December survey. Therefore, it will probably push Germany’s services PMI significantly lower in January. Having said that, the level of the eurozone services sector PMI in December (47.3) still is consistent with significant contraction in the sector in Q4.
Turning to the other part of the composite PMI, the manufacturing index, the December outcome indicates that the eurozone manufacturing sector remains in a recovery phase. The manufacturing PMI rose by 1.7 points to 55.5 in December, at which level it is consistent with solid growth in the sector. The new orders component of the manufacturing PMI jumped by 2.6 points to 56.7 in December, which suggest that output will continue to grow in the coming months. That said, some of the rise in orders might be in anticipation of Brexit at the start of 2021 and could be temporary in nature. Therefore, some payback in January seems likely. All in all, the divergence between activity in the eurozone services and manufacturing sector is continuing, with the contraction in activity in the services sector outweighing growth in manufacturing. Therefore, the December PMI report seems to be in line with our scenario of a double dip recession in the eurozone, with GDP contracting sharply in Q4 and more modestly in Q1.