Peak is behind us but the 50 mark is kept at safe distance

How not to start with manufacturing PMI?

Last week flash PMI for Germany, the eurozone and France confirmed how manufacturing activity is trending down from the heights reached at the end of 2017. The sector is clearly slowing, however no European country is scoring below the 50 mark denoting how manufacturing has still something left in the tank.

Remarkably, in July the Dutch PMI went below 60 for the first time since August 2017. Moreover, PMI for Germany – the largest manufacturer in Europe – is still trending around 56.

In terms of subsectors for the whole Europe, the most positive result is for the technology sector with a score over 56 closely followed by industrials. Less positive but still fine are sectors related to consumer goods and basic materials. At the bottom of the European ranking we can find financials, costumer services and healthcare which are hovering around 52.

The “hard” data confirm what predicted by PMI

The extremely positive PMI readings in the last year can be also seen in the real data provided by official statistics. In the graph we can appreciate how the average monthly year on year growth for the selected countries was 3.6% - a very high score confirming once more how manufacturing experienced a great expansion in the last year.

The performance in the last six months hasn’t been as good as the one in the previous period. As already seen in the PMI numbers, the business cycle is walking the downside path and the slowdown seen in the first quarter of 2018 was not only related to extreme weather condition but also to business factors.

However, we are still talking about a healthy and widespread expansion of about 2% in the majority of the big European economies and of about 3% in the two countries we found at the top of the “PMI ranking” – the Netherlands and Germany.

Next week you will see what we think about the UK economy

Next week you will be able to read our latest Manufacturing Outlook (start to get excited!) and among all the things that will be included, you will read our forecasts about the status of the UK economy for 2018 and 2019. In the meanwhile, we are showing you what the OECD reported in its latest Economic Outlook back in May 2018.

As we can appreciate from the chart, the UK was the top performer in the period between 2012-2014 and the second in the ranking in 2015 and 2016 – only the revived and roaring Spanish economy was able to grow more in these years.

For the next two years, the OECD see the UK growing 1.4% in 2018 and 1.3% in the next one. The weak performance is clearly related to the uncertainties around the Brexit process and what the future landscape will look like.

If the OECD forecast turn out to be correct, in 2018 the UK will be the slowest countries in terms of GDP expansion amongst the big EU countries (Germany, Spain, France, Italy, UK) after been penultimate in 2017.