Manufacturing Continues to Show Weakness Worldwide
The economic slump that has come with surging prices and higher rates looks like it is settling down now and again, but the negative numbers continue to come. This week we so some weak figures from Europe, China and the US, showing that the manufacturing activity is still in recession and the situation is getting worse, which sent the Euro and the GBP lower on Friday.
This week the USD was mainly weaker across the board, but some of the losses were reversed on Friday as the sentiment turned negative and risk currencies retreated, benefiting the Buck as a safe haven. The Euro and the GBP proved to be the softest currencies on Friday. This comes on the heels of lower French and German manufacturing and services PMI statistics, putting some pressure on the ECB to start cutting interest rates sooner, despite trying to sound hawkish on Thursday’s meeting.
So, this runs counter to the rhetoric they were trying to sell yesterday, as well as certain policymakers’ remarks today. EUR/USD plummeted from above 1.10 and closed the week below 1.09, while EUR/GBP slid from 0.8605 to 0.8580 in response, although it closed the week around 0.86. In the UK, services have returned to expansion, while manufacturing dipped further, while in the Eurozone both sectors are in recession.
German Manufacturing and Services PMI for December
- December flash manufacturing PMI 43.1 points vs 43.2 points expected
- November manufacturing PMI 42.6 points
- Services PMI for December 48.4 points vs 49.8 points expected
- Prior Services PMI was 49.6 points
- Composite PMI 46.7 points vs 48.2 points expected
- Prior Composite PMI was 47.8 points
“If you are on the hunt for gifts right now, you will not strike gold in the latest PMI survey for Germany. What you will find instead is an increasing number of companies reporting a reduction in output in both the service and manufacturing sectors. This confirms our view of a second consecutive quarter of negative growth by the year’s close, driven by the manufacturing sector. The less-than-encouraging development could be linked to the constitutional court ruling and the subsequent discord over the 2024 budget. This has injected a significant dose of uncertainty regarding potential new burdens for the economy.
“Despite a recent upturn in the manufacturing stocks of purchases index over the previous two months, December brought a setback. This does not necessarily spell doom for the inventory cycle’s potential turnaround next year, but it does hint that the journey to recovery might be bumpier than previously thought.
“In manufacturing, new orders continue to contract rapidly, marking the twenty-first consecutive month of decline. However, the index is on an upward trajectory, fuelled in part by a reduced drag from export orders. Notably, after seven months of pessimism, companies have shifted into optimistic territory regarding future output. This aligns with our perspective that the manufacturing sector is poised for a growth recovery next year.
“In the realm of services, the economic landscape is still dominated by the gloomy hues of stagflation. Output has contracted for the third consecutive month, while input prices are on the rise at a pace mirroring that of November. Interestingly, companies have managed to hike their selling prices even more rapidly than in previous periods. This outcome serves as a stark reminder of the lingering risks to the inflation outlook, despite a substantial overall reduction in official consumer price inflation in recent months.”
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