Eurozone Resilience

Since last summer, much eurozone economic data has been rather weak. As we’ve written, PMI and retail sales have been weakening for some time—running counter to reaccelerating US data.

But Tuesday’s release of January eurozone composite PMI—capturing a wide swath of its economies—showed different results. PMI accelerated for first time since August, rising from December’s 48.5 to 50.4 and easily beating estimates of 48.5. Readings above 50 signal growth—meaning despite all the hand-wringing over Europe, results seem far from the economic Armageddon some fear. Of course, a recession in Europe is still possible, but the data imply some resilience.

Eurozone Composite PMI

Source: Bloomberg.

Growth was particularly strong in Europe’s largest economy. Germany’s manufacturing and services PMIs accelerated to 50.9 and 54.5 respectively, both beating estimates. France’s services PMI also accelerated and beat estimates, rising to 51.7. Bucking the trend, France’s manufacturing PMI modestly decelerated to 48.5 and just missed estimates.

In other eurozone news, Spain also successfully auctioned debt again on Tuesday, selling €1.1 billion of 175-day bills at 1.85% and €1.4 billion of 84-day bills at 1.29%. Both reflect declines from December 20’s auction, which resulted in 2.44% and 1.74% yields, respectively. Since the ECB announced its unlimited three-year loan facility, short-term bond yields in Europe have largely fallen—implying European debt costs remain manageable.

Despite rampant negative sentiment, the eurozone—driven by better-than-expected resilience in its largest economies—seems to continue muddling through its peripheral debt woes. Few would argue recent results are robust. But it seems reality is likely better than very dim expectations.