Nothing can harm eurozone growth (it seems)
The eurozone's resilience seems unshakeable as evidenced by the recent rise in the composite PMI, which reached 53.1 in September — its highest level in three years, up from 52.0 in August. Per the full note from ing-think, this rebound occurs in the face of rising energy prices and supply chain disruptions, particularly with a notable increase in services activity. The PMI figures suggest that, even amid geopolitical tensions and inflationary pressures, the eurozone may be poised for decent growth in the third quarter. While this data is promising, the desk remains cautious about future growth given the substantial reliance on service sector momentum, and challenges remain in manufacturing, especially in France, where the PMI is precariously close to the contraction threshold. In summary, optimism persists, but the nuances in sector performance warrant attention.
What the desk is arguing
The eurozone's growth narrative is being reinforced by a significant increase in the composite PMI, which indicates expansion across the economic landscape. As discussed in the note from ing-think, resilience against external shocks, such as surging oil prices and supply chain crises, is somewhat unexpected but highlights the underlying strength in economic activity.
The services sector played a pivotal role in this uptick, with its PMI rising from 51.6 to 53.0, especially in Germany where it jumped from 49.7 to 52.9. However, manufacturing remains a mixed bag, and caution is warranted given its recent stagnation in several member states. The evidence suggests that the third quarter might wrap up with solid growth metrics for the eurozone, but the sustainability of this growth remains to be seen.
Where it sits in our coverage
Current consensus around EUR/USD suggests a target of 1.075, with a range between 1.04 and 1.12. The following firms have set specific targets: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This outlook aligns with a general bullish sentiment for the eurozone; however, bofa offers a more cautious perspective, lying at the lower end of the target spectrum compared to the desk's more optimistic stance.
How other firms see it
Most firms with positive views on the EUR/USD trajectory are leaning towards a stronger euro, echoing the bullish sentiment seen in the PMI reports. In contrast, bofa holds a more pessimistic view on the eurozone's resilience.
Monitoring the performance of EUR/USD will be critical as we track how effectively the ECB responds to ongoing inflationary pressures and geopolitical instability.
What the calendar says
Currently, no high-impact events are scheduled within the next 30 days, suggesting that the market may rely heavily on data-driven narratives and existing economic sentiment for direction.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01The eurozone composite PMI rose to 53.1, indicating economic expansion amid external pressures.
- 02Resilience is largely driven by a rebounding services sector, particularly in Germany.
- 03The manufacturing sector is showing signs of stagnation, particularly in France.
- 04Future growth remains uncertain and hinges on sustaining momentum amidst inflationary pressures.
Market implications
The key level to watch for EUR/USD is 1.075, which aligns with the consensus target. Continued strength in PMI data could bolster the euro against the dollar, signaling investor confidence in the eurozone's growth narrative.
Risks to this view
Any significant reversal in inflation trends or a sharp contraction in the manufacturing sector could invalidate the current bullish outlook for the euro, leading to a reassessment of the expected growth trajectory.
Older quick take Quick take Published 09:30 Nothing can harm eurozone growth (it seems) The composite PMI increased to its highest level in three years, coming in at 53.1 in September, up from 52.0 in August. Despite surging oil prices, low water levels and supply chain disruptions, economic activity remains relatively unharmed A eurozone economy that remains completely unharmed by an energy price shock and supply chain disruptions is a welcome surprise This PMI report must be music to Europe’s ears. It is the figure most often cited as evidence of the eurozone's resilience.
The eurozone composite PMI came in at 53.1 in September, from 52.0 in August. Despite the latest escalation in the Middle East, surging oil prices, rising interest rates and low water levels, economic activity is thriving. A closer look at the data, however, shows that the more dynamic activity stems mainly from services, which jumped significantly from 51.6 to 53.0.
What is driving this jump in an environment of higher inflationary pressures remains a bit unclear. Germany, in particular, saw an increase in services activity, from 49.7 to 52.9, which almost looks too good to be true. Looking at the manufacturing sector, the eurozone as a whole is holding up very well, while in France the manufacturing PMI has dropped dangerously close to the famous 50-threshold.
Generally speaking, the rise in input buying helped eurozone firms to keep their stocks broadly unchanged. An activity that does not automatically lead to higher growth in the future. Today’s PMI indicates that the third quarter could have still delivered decent economic growth for the eurozone as a whole.
Even if the key 50-mark is no longer that reliable in separating growth from contraction, the eurozone is looking at PMIs significantly above this neutral reading of 50 in every single month of the third quarter. At the same time, inflationary pressure has built up again, with both input costs and output prices increasing at the highest rates in four months. All in all, today’s PMI readings are almost too good to be true.
A eurozone economy that remains completely unharmed by an energy price shock and supply chain disruptions is a welcome surprise. Let’s hope it doesn’t turn out to be a mirage. At face value, however, today's PMI readings make it more difficult for even the ECB's most dovish policymakers to rule out another rate hike.
Monetary Policy Inflation GDP Eurozone ECB Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Author Carsten Brzeski Global Head of Macro Older quick take
Sources & References
How we cover this story