Despite the current geopolitical conflicts, the results of the purchasing managers’ survey show a clear improvement in sentiment in July. The composite index for the industrial and services sectors climbed to 54 points, higher than the average in the first and second quarters of this year (53.1 and 53.4 respec-tively). This was driven mainly by the services sector, whereas the PMI for industry remained below the average seen in the first half of the year.
The fact that the German composite index rose by almost two points on June to 55.9 underscores further the importance of Germany as a growth engine for the eurozone. In France the services index is now back slightly above the 50-point mark, but the PMI for the industrial sector remains well below this expansion threshold.
For the second quarter we are penciling in slightly positive sequential growth of 0.2%. In 2014 as a whole growth is likely to reach 0.8%. In our view France is not as bad as its reputation in some quarters currently suggests – the country will not become the “new sick man” of Europe, but economic growth will remain below the eurozone average.
We are sticking with our forecast of eurozone GDP growth of 1.2% this year. A further drop in the PMIs would have been worrying, but today’s figures confirm our picture of an ongoing recovery. Although a number of indicators were weak in the second quarter, such as industrial production in May, public-holiday long weekends played a role here. We still expect the quarterly pace of growth in the eurozone (Q1 2014: 0.2%) to pick up slightly as the year progresses.