Today, February 22, “flash” estimates for purchasing managers’ indexes (PMI) in the UK and Eurozone have been released. With the UK now officially in recession, joining Germany, these data sets are closely watched for signs of recovery in key economic sectors like manufacturing and services. They are initial estimates for the current month that are subject to revision.
Starting with the eurozone, business activity fell at the slowest rate for eight months in February, according to provisional PMI survey data provided by S&P Global today. Stabilisation of output in the service sector offset a further steep downturn in manufacturing.
The seasonally adjusted HCOB Flash Eurozone Composite PMI Output Index rose from 47.9 in January to 48.9 in February (slightly higher than FacSet consensus). Here 50 is the dividing line between expansion and contraction.
In its note, S&P says: “Although signalling a ninth consecutive month of falling output, February’s decline was the smallest since last June. While the latest reading suggests that the eurozone’s deepest contraction since 2013 (if early pandemic months are excluded) has persisted into 2024, the rate of decline is showing signs of moderating in the first quarter.”
The figures continue to vary markedly by sector across the eurozone. Manufacturing output fell to 46.2 for an eleventh consecutive month, an acceleration of decline after a moderation in January (46.6). In contrast, service sector business activity stabilised at 50 (slightly higher than in January), after six months of continual deterioration.
Germany is Lagging the Eurozone
By country, a deepening contraction in Germany and sustained output fall in France were countered by faster growth in the rest of the region. Germany’s output dropped for an eighth successive month, at the fastest rate since last October. France’s output also declined, but at the smallest recorded rate since the country’s downturn began in June of last year.
Meanwhile, the rest of the eurozone collectively reported growth of output for a second month running, in contrast to the prior five months of decline. This is the largest monthly improvement since last May. Service sector growth sped up, and manufacturing has almost stabilised.
Confidence has also improved to hit a 10-month high. This is encouraging firms to raise staffing levels at a pace not seen since last July, signalling that the eurozone downturn is moderating.
Will the ECB Cut Interest Rates?
According to Michael Field, European market strategist at Morningstar, flash PMIs today confirmed two things:
• Expectations in Europe are low.
• The picture is still mixed.
“Manufacturing PMIs in Europe declined in February. With energy prices elevated and a relatively tight labour market, it is hard to see this trend improving materially anytime soon,” Field says. “Services PMIs were more promising, rising to 50 for the first time since summer 2023, ahead of economists expectations.”
“All in all though, the European economy remains weak, whether this translates into swift interest rate cuts by the ECB remains to be seen. But certainly, the ECB is under growing pressure to take action on this front,” ended Field.
UK PMI Soothes Recession Worries
Morningstar’s Field comments that the UK’s numbers follow the trends in the eurozone, too.
The UK's private sector expanded for the fourth consecutive month and at the fastest pace since May last year, preliminary data suggested on Thursday. The index rose to a nine-month high of 53.3 points in February from 52.9 points in January. Rising further about the 50-point no-change mark, it shows the pace of expansion sped up slightly. The reading was higher than FXStreet-cited market consensus of 52.9.
Field says: “Essentially services are showing a significant improvement, rising to 54.3 in February, ahead of expectations. Manufacturing remains firmly below the magic 50 number, at a lowly 47.1, with the outlook here unlikely to reverse any time soon.
The flash UK services PMI was unchanged from January, standing at 54.3 points. FXStreet were expecting a lower reading of 54.1.
The S&P note explains that survey respondents often cited a turnaround in business and consumer spending, despite ongoing cost-of-living pressures, whilst some also commented on a boost from less restrictive financial conditions.
Chris Williamson, chief business economist at S&P Global Market Intelligence, comments: "The survey data point to the economy growing at a quarterly rate of 0.2-3% in the first quarter of 2024, allaying fears that last year's downturn will have spilled over into 2024 and suggesting that the UK's 'recession' is already over."
Will the Bank of England Cut Rates?
Field notes that whether the flash PMI figures mean UK savers can expect a rate cut in the coming months remain to be seen, but that the Bank of England has several options.
“With interest rates in the UK the highest of the big developed countries, at 5.25%, the Bank of England has significant room for manoeuvre with regard to cuts. For bankers trying to walk the tightrope of a resurgence of inflation and a struggling economy, their task is not getting any easier.”
By Sara Silano and additional content from Alliance News
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