- Previously 53.3
- Manufacturing PMI 47.4, forecast 46.2
- Previously 45.7
- Composite PMI 52.3 (forecast: 52.0)
- Previously 51.7
An improvement in the German report from the previous day offset some initial concern from the French report. Overall, the ECB has some breathing room after its June rate cut. EUR/USD is roughly flat at 1.0828 after inching closer to its 100-day moving average at 1.0814. HCOB noted:
“This couldn't be better. The composite PMI index for May showed growth for the third consecutive month, signalling further strength for the euro area economy. Encouragingly, new orders are growing at a healthy pace and business confidence is reflected in the steady pace of hiring. There is also some good news for the European Central Bank (ECB) this time around, as services sector input and output price inflation has softened compared to the previous month. This will support the ECB's apparent stance to cut interest rates at its meeting on 6 June. However, the improving inflation outlook alone is unlikely to be enough for the central bank to announce further rate cuts.
“We are moving in the right direction. Taking into account the PMI figures for GDP forecasts, the euro area will put aside fears of a recession and grow at 0.3% in the second quarter. Growth is mainly driven by the services sector, whose expansion has been extended to four months. Manufacturing plays an increasingly less role as a bottleneck for the economy and there is more optimism in this sector about future production. With all this in place, GDP growth this year could reach almost 1%, with even upside risks.
“Looking for drawbacks? There are plenty, especially in manufacturing. Manufacturers have largely stopped cutting production, but inventories of purchased goods and finished goods continue to decline at a faster pace than last month. Indicators of new orders, employment and work backlog are all increasing but still well below the expansion threshold. Thus, according to our nowcast calculations which take into account PMI indices, the manufacturing downturn continues into the current quarter.
“The German economy is outperforming the French economy, due to robust growth in the services sector, which has been shrinking in France. The development of the manufacturing sector is less severe than in France, but like Germany, this sector has not yet emerged from recession. People like to compare the performance of the economies and point out weaknesses and strengths, but the good news is that overall the two economies are in step. This means that France is likely to eventually catch up in the services sector, putting euro area growth on a sounder footing.”
