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The provisional PMI data for Germany, France and the eurozone as a whole suggest that the modest optimism expressed by the ECB earlier this month is not wholly without substance. At the January press conference, Draghi noted that “there are tentative signs of a stabilisation in activity at low levels” and for the two largest economies and the eurozone as a whole at least, today’s data offer weight to this view. The increase in the manufacturing balance for Germany takes it back above 50 and to a level last seen in August of 2012 (at 50.9), whilst the services series showed even more vigour at 54.5. Although manufacturing in France fell, services recovered and, for the eurozone as a whole, the services balance was back above 50 (again for the first time since August).
This sits in contrast with the recent trend towards forecasting a mild upcoming recession in the eurozone, the most recent warnings coming from the IMF ahead of the publication of its latest round of forecasts. The pattern of today’s data does more to back up the view that any such recession is likely to be mild, but within this the stand-out factor is the increasing economic divergence between Germany and (to varying degrees) the rest of the eurozone. All well and good from one perspective, but the structure and basis of the single currency was economic convergence, something which the current crisis has blown apart.
