Eurozone PMI unchanged in December, rounds out strong quarter - ING

According to the Bert Colijn, Senior Economist at ING, another strong Eurozone PMI indicates a good end to 2016 as fourth quarter GDP growth promises to be stronger than initially expected.

Key Quotes

“Despite continued political uncertainty, the Eurozone composite PMI remained unchanged at 53.9. This adds up to the strongest quarter of the year according to the survey. Exports and investment growth weakened in the third quarter as businesses entered “wait-and-see” mode after the Brexit referendum, but surveys indicate that this did not continue in the fourth quarter. As the more immediate negative impact of the Brexit vote was less than expected, the PMI indicates that Eurozone businesses have seen more orders come in and have started to hire again. This was already the case in October and November, and December was no different.”

“The service sector saw a small decline in activity this month, while the manufacturing sector index reached a 32-month high in December. The reality though is that industrial production has disappointed even though survey indicators have improved. In October, production declined for the second month in a row, while the PMI had indicated a pickup in the manufacturing sector. The question is whether we will actually see a recovery in industry as the surveys indicate, or whether the sector will remain structurally sluggish over the winter months.”

“Just a week after the ECB decision to lower the monthly asset purchases back to EUR60bn as of April 2017, the PMI also indicated that price pressures are continuing to increase. Businesses indicated that input prices are rising at the fastest pace since 2011 and that they are now passing the increased costs on to the consumer. This means that early 2017 could well see the return of rising core inflation in the Eurozone, which the ECB has been eagerly awaiting.”