France and Germany surge while Spain and Italy struggle
Eurozone shows good momentum in Q3
The Markit Eurozone PMI Composite Output Index dipped slightly in August, from 56.7 in July to 56.2. Despite the fall, the reading signals the ongoing resilience of the Eurozone economy and, although the rate of economic expansion is likely to slow from the 1.1% surge in gross domestic product (GDP) seen in Q2, growth is likely to remain close to the long-run trend rate.
PMI data for July and August are so far consistent with quarterly GDP growth of approximately 0.6%-0.7% in Q3, although it is likely that growth may come in weaker than this estimate as GDP data are showing greater volatility than the PMI so far this year.
Recovery spreads from manufacturing to services
Manufacturing continued to lead the recovery ahead of services, but the divergence between the two sectors has narrowed compared to earlier in the year. Service sector growth accelerated to show the second largest monthly rise over the past three years, while manufacturing growth slowed to a three-month low.
While the slowdown in manufacturing largely reflects an easing in global trade flows since the post-recession surge seen earlier in the year, the improvement in services reflects a welcome broadening out of the recovery as consumer spending and business spending pick up.
France and Germany surge
Although the recovery is showing signs of spreading from manufacturing to services, divergences have widened among the major national economies.
The strongest pace of expansion, as measured across manufacturing and services, is currently being seen in France, followed closely by Germany. Despite the rate of increase slipping slightly in both cases, the rates of expansion in France and Germany remain close to the post-recession highs seen earlier in the year and are indicative of sustained strong GDP growth in Q3 (possibly in excess of 1% in Germany and around 0.7%-0.8% in France, although – as with the Eurozone growth estimate – comparisons are made difficult by the volatility of the GDP numbers so far this year).