European officials keep insisting that the euro area as a whole is not yet in a recession. That's wishful thinking because the latest PMI numbers say otherwise. PMI tends to be a leading indicator for GDP growth. PMI of 50 means no change.
|Eurozone PMI (source: Markit)|
This is not just driven by the periphery. While Germany has stalled...
France is undergoing a contraction.
It's just a matter of time before the recession becomes visible in the GDP numbers.
Capital Economics: - The fall in the euro-zone composite PMI, from 46.7 to 45.9, was sharper than the consensus forecast of a decline to 46.5 and left it consistent with quarterly falls in GDP of about 0.5%. After narrowly escaping a return to recession in Q1, it now appears very likely that the economy will experience a renewed contraction in the second quarter.
May’s fall was due to declines in both the services and manufacturing indices. And worryingly, the limited available breakdown by country revealed that the downturn is affecting the core as well as the periphery, with both the German and French composite PMIs falling further below the “no-change” level of 50.
What’s more, the previously resilient German Ifo measure of business confidence dropped much more sharply than expected. The fall from 109.9 to 106.9 reversed the gains of the previous five months and reflected weakening current conditions and business expectations across a range of sectors. Most notably, the drop in the retail index will have dampened hopes of a strong consumer recovery.