Euro area: PMIs signal resilient growth – Nomura

Nomura’s European Economics team notes that Euro area August Purchasing Managers' Index (PMI) showed resilient growth, led by a strong manufacturing rebound, while price pressures eased. Consumer inflation expectations also remained contained, supporting Nomura’s view that the European Central Bank (ECB) can still deliver a 25bp rate hike in September.

Manufacturing strength and easing prices

"The manufacturing sector drove the rise in the euro area composite PMI, with particular strength in Germany and France. The euro area manufacturing output PMI rose to its highest level since February 2022. There was no change in the euro area services PMI, despite declines in Germany and France, suggesting strength from the periphery."

"In the euro area, the price indices of the PMIs fell pretty much across the board (although there was a small rise for the services input price index). The composite input and output price indices both fell, but are still higher than pre-Iran war. For now, it seems euro area business price pressures have not started to build again following the July re-escalation of the conflict in the Middle East."

"The ECB’s Consumer Expectations Survey, also out this morning, is important for gauging medium-term consumer inflation expectations. In the July survey, despite the re-escalation of the Iran war in July, 3y ahead median inflation expectations continued to normalise and declined by 0.1pp to 2.7%, whereas 5y ahead median inflation expectations were unchanged at 2.4%. The continued benign moves in euro area PMI price indices may suggest little pressure on consumer inflation expectations in August, despite the continued closure of the Strait of Hormuz."

"The next ECB and BoE meetings are both in September, and we expect a 25bp hike from the ECB and no change in rates from the BoE. The PMIs show that output growth across Europe has been fairly resilient despite the recent re-escalation of the Iran war, which may ease concerns from more dovish policymakers that are keen not to restrict activity more than necessary."