Euro Area PMI, GDP and Prices

The euro area flash PMI is one of the most important economic reports in the monthly data cycle. These Great Graphics capture the importance of today’s report.

The first two charts come from The Guardian’s Business Blog. The first one shows how well the flash PMI composite output measure tracks GDP. PMI had overshot the GDP and the weakness in the June readings may be it simply coming back into line.

The second chart is of France’s performance. The fit is not as tight as it is for the region as a whole. Still, the weakness in the French PMI warns that the euro area’s second largest economy is not just weak, but may have contracted again.
The „secular stagnation” that Summers resurrected from the Hansen who first articulated it in 1943, was used in reference to the US. Yet it seems to be more applicable to the euro area than the
US.

The last chart was tweeted by Frederik Ducrozet. It looks at the price component of the PMI data. Drawing from work by Credit Argicole that creates an index of input prices and delivery times (apparently as a proxy for output prices). This suggest that the deflation risk may be somewhat exaggerated.

ECB officials are not simply concerned about deflation and, in fact, have consistently played down the risks. Officials are worried about persistently low inflation (lowflation). That said no action should be expected until after the new LTRO funding is made available and evaluated. This makes an asset purchases program unlikely this year.