Euro area’s flash purchasing managers’ index for manufacturing unexpectedly rose solidly by 1.5 points to 47.8 in January. This raises hopes that the sector has put the worst behind it, noted Commerzbank in a research report. However, the service sector PMI index was disappointing, falling 0.6 points to 52.2 in the month. This signifies that the December rise was mainly wiped out again.
The rise in manufacturing index gives hope that the low point in this sector has been passed. Following the recent rises, the seven-month average of the PMI has also risen a bit. This has been a reliable turn-around signal in the past.
Several factors indicate towards an end to the downward fall in manufacturing: the easing of the trade dispute between the U.S. and China, the reduced risk of a hard Brexit, rate cuts in the U.S. and several emerging markets, and the recent revival in demand from China. The rebounded foreign trade environment benefits above all the heavily export-dependent manufacturing.
“However, the emerging stabilization in manufacturing should also help the service sector, which has so far been able to decouple itself from the shrinking manufacturing sector. To this extent we would not overestimate the decline in the purchasing managers' index for this sector, especially as the index in Germany improved significantly by 1.3 points to 54.2”, added Commerzbank.
