Monex: Duitse consumptie kan stokje overnemen dat industrie laat vallen

Feb 21, 2019

Just as Eurozone manufacturing seems to drop the baton, consumers may come to the rescue and pick it up, though they run at a slower pace. This morning’s German Flash Purchasing Manager Indices, with its manufacturing leg sketching a grim picture with the lowest print in more than six years, while Services PMI painted with brighter colours as it unexpectedly rose to a level of 55.1.

The composite PMI still points towards the slowest growth rate in more than 5 years for the German economy. However, as the manufacturing slowdown was a virtual given, while the strength of domestic demand remained more of a question, on balance, this seems like a positive surprise.

There is a case to be made for consumers propping up economic growth in the Eurozone in 2019, as wage growth is at a decade high, while inflation remains muted, which leads to healthy real wage growth. Helped by rising minimum wages and a tight labour market, consumer confidence remains elevated above long term average levels. This seems to indicate consumers both have the growing means and the appetite to spend, which can compensate for the lower activity in the manufacturing sector.

Even the risks for the manufacturing sector may be to the upside, as the biggest cause of the slowdown in manufacturing stemmed from fewer export orders. Now trade talks between China and the US seem to be progressing, German and other Eurozone manufacturers may be among the first to benefit from these improved trade conditions. Coming from the current low base, this means there may be more upside than downside for the manufacturing sector in the Eurozone. Although, optimism may be stemmed by possible automobile tariffs coming from the US as the Trump administration rediverts its attention from China.

Slow and steady may win the race for a lacklustre Eurozone, which may finally start to show signs of overtaking the hare that is the US.