This morning’s flash Purchasing Managers Index survey responses showed that German manufacturing remains the sick man of Europe, with the survey indicating that the sector is still deeply in contractionary territory. Heavily export-dependent, the nation’s industrial base continues to face serious challenges from global trade tensions and the auto industry problems. France is showing greater immunity to this wider dynamic, although stabilisation is only at stall speed, close to the 50 mark. However, uncertainty is likely to continue, particularly with the overhanging threat of potential future US trade action given that the EU continues to be singled out in rhetoric from the US administration.
Services remain a brighter spot with French data improving and German figures indicating continued solid growth. The concern is that without an improvement in the manufacturing sector, services may start to feel the repercussions. Given the importance of the manufacturing base to the German economy, the question is how long can the strong services numbers continue before they feel the effects of the industrial contraction. Consensus forecasts still see very weak growth in Germany in the near future as the entire Eurozone struggles with slow growth and inflation that is driving ever more bonds into negative yield.