Euro area PMIs to soften in August

The Euroarea manufacturing PMI data for August is scheduled to release today. 

"The data is expected to soften from 52.4 to 51.6 in August, with only France eking out a small gain in its manufacturing PMI compared to its low reading in July. The services PMI should increase from 54.0 to 54.1 on the back of small rises in the estimates for France and Italy. The composite PMI is expected to show a modest decline, from 53.9 to 53.6", says Societe Generale in a research report. 

Confidence in the manufacturing sectors in Germany and France is struggling to take off. This likely reflects weaker Chinese import demand, heightened uncertainty (Greece/China) in Germany and insufficient progress with reform in France.

"These PMI levels would be consistent with GDP growth in the range of 0.3%-0.45% qoq, close to their Q3 GDP forecast (0.4% qoq). It is worth noting that, although our Q3 growth forecast for the euro area stands slightly higher than in Q2 (0.4% qoq vs. 0.3% in Q2), we do expect falls in the manufacturing PMI in almost all countries. This is mainly because manufacturing PMIs have reached an upper bound given the historic relationship between PMIs and economic growth", adds Societe Generale.

The weakness in the euro will help boost export market shares, but the gains cannot entirely offset the weakness in global trade. In particular, the flow of news from China should have some negative effects on PMIs going forward. As a reminder, China represents around 6% of total euro area exports, which amounts to around 1.3% of euro area GDP, notes SocGen.