Friday, March 27, 2009

Euro-Zone PMI Holds Near Record-Low In March

The Euro-Zone PMI composite unexpectedly rose to 37.6 in March from a record low of 36.2 in the previous month, while the PMI reading for manufacturing and services rose to 34.0 and 40.1 respectively. Meanwhile, economic activity in German improved during the same period as the manufacturing PMI increased to 32.4 from 32.1

Barring some spectacular (and entirely improbable) turnaround in March it now seems likely that the Q1 GDP contraction will be worse than the Q4 2008 one. If we consider that the eurozone contracted by 0.2% in Q3 2008, and by 1.5% in Q4, then, in my humble opinion, the data we are seeing for this quarter are entirely consistent with a 2% quarterly contraction (or an annualised 8% rate of contraction). Not quite Japan territory yet, but not far behind. And for those who simply don't believe the PMIs can tell you so much, here is Markit's own chart, showing the strong underlying relationship between movements in GDP and the *flash* composite PMI. Pretty impressive I would say.

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