Eurozone manufacturing PMI was estimated at 51.7 for the month of August 2013 by HSBC, which was at the highest level in the last 26 months. The PMI rose for the fifth successive month, up from 50.5 in July to 51.7 in August 2013.
Figure 1: Markit (Flash) Eurozone PMI and GDP
Eurozone Manufacturing PMI
According to the press release by Markit, “both manufacturing and services reported higher output in August, with goods producers reporting the larger increase.” New orders increased marginally in August while the composites for both goods and services increased to 51.7 and 51.0 respectively. All of the indices were the highest over the past two years.
Table 1: Eurozone PMIs for August 2013
Germany25-month high PMI
In Germany, the manufacturing PMI stood at 52.0 in August 2013, a 25-month high and above the July PMI of 50.7. The goods and services PMIs touched 7-month high at 53.4 and 6-month high at 52.4 respectively. “New business continued to rise across the German private sector in August, and the rate of expansion was the sharpest for seven months. Meanwhile, manufacturers indicated a return to growth in new export orders during August, which ended a five month period of decline.”
Figure 2: Markit German Composite Output Index vs. GDP
Table 2: German PMIs for August 2013
France PMI declines
France, on the other hand, registered a decline in its PMIs. Lower output was registered in both manufacturing and services indices. In manufacturing sector, business activity decreased for the thirteenth consecutive month, and at a sharper pace than in July. In the latter, output fell following a rise in the previous survey period.
Employment also declined further in August, further pointing towards GDP contractions. Given the current results of PMI surveys, we cannot expect the French economy to pick up anytime soon.
Figure 3: Markit French Composite Output Index vs. GDP
Table 3: French PMIs for August 2013
Eurozone PMI correlation with Germany and France
Eurozone PMI exhibits a stronger correlation with the German PMI than the French PMI. The correlation between German and European PMI stands at 99.12% while that between French and European PMI is 94.32%. The German economy is picking up at a growing pace while the French economy continues on a downward trajectory.
Figure 4: Germany, France and Eurozone PMI trends over the past five years
Hence, the impact of the upward pull from Germany should be greater than the impact of the downward pull from France. Given the survey results on the two major economies, we can comfortably say that the Eurozone overall can be expected to grow.