Euro area’s flash service sector PMI index rises in August, economy likely to grow 2 pct in 2018

Euro area’s purchasing managers’ indices showed a mixed picture of the currency bloc’s economy. The PMI for industry dropped to a new all-year low in August at 54.6, but the index for services sector rose slightly to 54.4. In all, the data released today imply that the euro area economy might maintain the more moderate rate of growth seen at the start of the year in the second half of 2018, noted Commerzbank in a research report.

The services sector’s PMI index rose by 0.2 points to 54.4 in August. It has thus been moving sideways for six months. On the contrary, the purchasing managers’ index for industry dropped by 0.6 points. The trend here continues to indicate clearly downwards.

The positive news is that the euro area economy might probably not collapse. The PMI for the services sector, which in the past has been closely correlated with the pace of change in real GDP growth, shows that the underlying growth rate is still slightly above the long-term average. Thus, the real GDP of economy is expected to grow 0.4 percent in the third quarter, stated Commerzbank. On an average, the economy is likely to expand 2 percent in 2018.

On the other hand, the subdued phase in industry, which is especially exposed to the headwind from foreign trade, is expected to continue for some time, which will avert the economy from picking up speed again.

The upswing the euro area would just be in danger if the European Central Bank were to hike interest rates considerably. But this is not in sight. The ECB is set to discontinue its bond purchase programme at the end of the year.

“However, we do not expect a first small increase in the deposit rate by 0.1 percentage points to -0.3 percent until September 2019”, added Commerzbank.

At 12:00 GMT the FxWirePro's Hourly Strength Index of Euro was neutral at 48.5227, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at 33.8091. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex