Eurozone's Economic Activity Supported By Services As Manufacturing Slumps Into Contraction

• The Eurozone composite PMI rose to a 3-month high of 51.4 as services improved and manufacturing fell to a 68-month low of 49.7 in February.
• German manufacturing PMI fell to a 74-month low of 47.6 in February while services activity gauge jumped to 55.1.
• French services and manufacturing recovered in February, but the composite activity remained in contraction territory.

The economic activity in the Eurozone increased slightly as improvement in services masked the deepening contraction in manufacturing in February. The composite purchasing managers’ index (PMI) rose to a 3-month high of 51.4 in the Eurozone as services PMI rose to 52.3 and manufacturing fell to a 68-month low of 49.7 in February. The services sector improved in Germany and stabilized in France in February.

It is the German manufacturing slumping further into the contraction that stands behind the deterioration of the Eurozone manufacturing gauge in February with German manufacturing PMI falling to a 74-month low of 47.6.

Although the overall picture for the Eurozone improved slightly in February, the survey data suggest that the economic growth is at the brink of recession. That is particularly the case of France while Germany is supported by the services sector that compensates for the slump in manufacturing. The GDP growth in Germany and the Eurozone is expected to rise 0.1% over the quarter in the first quarter of 2019 while France may swing into negative growth rate.

“The weakness is being led by manufacturing, which has now entered its first downturn since mid2013. With factory order books deteriorating at an increased rate, the rate of contraction in the goods-producing sector will likely worsen in coming months,” Chris Williamson, chief business economist and the author of the Eurozone PMI wrote in the report.

On the bright side of the business activity report is the Eurozone employment that held steady in February. Companies kept hiring new staff in February at a solid pace that was faster than at the start of the year. Structurally, the rate of job creation quickened in the service sector and held steady in manufacturing.

The Eurozone PMI and GDP growth rate, February 2019