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German manufacturing is flirting with recession according with the second estimate of the PMI manufacturing for November which now stands at 49.5 from a previous reading of 50,0. The index is now at its lowest reading since May 2013 and lost 4,5 points since the Spring. The decline is explained by a sharp drop in orders (47,1 from 49.8) and mostly in exports orders from 50,9 to 48,5. The trend in the PMI manufacturing is somewhat at odds with the signals from the IFO e ZEW survey.
In France the PMI manufacturing index was revised upwards by 8 tenths to 48,4, more in sync with the signal from the INSEE survey, which bounced back last week.
The first estimate for Italy shows the headline index unchanged versus previous month to 49,0 while Consensus had looked for a slight improvement.
The surprise is Spain with the headline index booming to 54,7 from 52,6 highlight a trend in very sharp contrast with the rest of the euro area. The issue is still whether Spain cl leave out of its own steam for much longer or will start feeling the cold winds blowing from core Europe.
The PMI index for the euro area was revised down to 50,1 from a preliminary reading of 50,4, the drop from October (50,6) is mainly driven by domestic demand which was down to 48,7 from 50,5 whilst export orders remained unchanged at 50,7.
The November PMI suggests that the euro area core is on the verge of stagnation. The performance of Spain is welcomed but we need to see whether it is sustainable in the next three months or so.
The December batch of business surveys in particular in Germany is key to assess the health of the Euro zone economy and thus of possible further monetary policy easing from the ECB
This coming Thursday, the ECB will have to play it hard to win some extra time, repeating it needs to assess the impact of the existing measures in early 2015, while at the same time stressing the Euro system relevant Committees are doing preparatory work for new measures, if needed. The probability of the ECB extending asset purchases to government bonds increased to above 50% in the past month. We think December might be too early and we see an announcement as more likely by the 5th of March.
