January flash PMIs’ fall a further blow to the ECB’s benign base case
Following a surprising rise of the ZEW earlier this week, today’s release of the January Flash PMIs defied expectations that sentiment would stabilize on a broader basis. The January composite PMI reading is the lowest since July 2013 and 0.3 standard deviations below average.
- With a reading of 50.7, the euro area composite flash PMI for January fell to the lowest level since July 2013 amid employment creation losing steam.
- The deterioration in sentiment was mainly driven by faltering service sector sentiment in France suggesting ongoing headwinds from the yellow vests.
- Today’s PMI data would suggest a meagre Q1 GDP growth rate of just 0.1% qoq, highlighting downside risks to euro area activity and the domestic recovery.
- The January PMIs are a further challenge to the ECB’s benign macro scenario.