EMU: German Manufacturing Continues to Shine

Euro zone manufacturing PMI continued to surprise on the upside of expectations in December. According to the first estimate, euro zone manufacturing PMI rose from 55.3 to 56.8, after already a major upward surprise in November.

Strength was again based in Germany, where manufacturing PMI jumped from 58.1 to 60.9, while French manufacturing PMI dropped from 57.9 to 56.3.

Sentiment in the services sector was less upbeat as euro zone services PMI dropped from 55.4 to 53.7, while only a slight decline was expected.

National data show that both in Germany (58.3 from 59.2) and France (54.1 from 55.0) services sentiment weakened.

The outlook for the services sector is however not that bad as the business expectations subindex rose slightly (from 66.3 to 66.5).

The composite reading dropped from 55.5 to 55.0, while a decline to 55.3 was expected and also the composite employment index weakened (from 53.1 to 52.3).

These data confirm again the exceptionally strong recovery in Germany, which is however mitigated by a somewhat weaker performance in the non-core EMU countries.

CPI

The final figure of November CPI inflation came out exactly in line with expectations. In November, CPI inflation rose by 0.1% M/M to an annual level of 1.9% Y/Y, as was indicated by the first estimate.

The details show that prices of food (0.4% M/M), alcohol & tobacco (0.5% M/M), clothing (0.9% M/M) and energy (0.8% M/M) rose sharply in November, while prices of hotels & restaurants (-0.6% M/M), recreation & culture (-0.5% M/M) and communication (-0.2% M/M) dropped in November.

Core CPI, which excludes food and energy, stayed unchanged at 1.1% Y/Y, indicating that underlying inflationary pressures continue to be muted, which will probably remain so in the coming months as unemployment stays high and wage growth muted.

Content provided by: KBC Bank