Insights.abnamro.nl/en

Daily Insight

23 February 2016

Eurozone slows down

Composite PMI lower again

The eurozone’s composite PMI staged its second monthly decline in a row. It fell to 52.7 in

February, down from 53.6 in January. This decline has closed the gap between the

composite PMI and GDP growth that had built up during the second half of last year. In fact,

the PMI is now at a level that is consistent with GDP growth weakening somewhat from the

0.3% qoq that was recorded in 2015 Q4. Such a slowdown in GDP growth is in line with our

below-consensus scenario for the eurozone economy. Indeed, we forecast the eurozone

economy to expand by 1.2% this year, down from 1.5% in 2015.

Eurozone composite PMI and GDP growth

level % qoq

Source: Thomson Reuters Datastream

Slowdown driven by exports and industrial output

The details of the PMI report show that the weakness in the first two months of this year was

concentrated in the industrial sector, with the manufacturing output index dropping by more

than twice as much as the services sector activity index. This reflects the weakening of the

global economy on the back of the ongoing tightening of financial conditions and heightened

-1.0

-0.5

0.0

0.5

1.0

40

45

50

55

60

10 11 12 13 14 15 16

GDP (rhs) Composite PMI (lhs)

Group Economics Macro & Financial Markets Research

Nick Kounis

Head of Macro and Financial Markets

Research

Tel: +31 20 343 5616

nick.kounis @nl.abnamro.com

Aline Schuiling

Senior Economist

Tel: +31 20 343 5606

aline.schuiling@nl.abnamro.com

The eurozone composite PMI fell further in February …

… signalling weaker economic activity and lower inflation

Softer data could help sway moderates at ECB to back aggressive easing

US manufacturing PMI also fell adding to weak global picture

2 Daily Insight – Eurozone slows down - 23 February 2016

uncertainty caused by the market turbulence since the start of the year, as well as the

appreciation of the trade-weighted euro since early December 2015.

PMI report also points to lower inflation

The price components of the Eurozone PMI report show that disinflationary pressures

intensified further in February. Both the input and the output price index of the composite

PMI declined that month and both indexes are now below their long-term average value. As

in the case of the activity indexes, the weakness in prices was also concentrated in

manufacturing. Indeed, the input prices index of the manufacturing PMI dropped to 40.4 in

February, down from 41.1 in January. It now is at its lowest level since July 2009, when the

global economy was contracting on the back of the financial crisis.

Eurozone PMI survey could sway moderates on ECB Governing Council

The weak activity and price readings from the PMI could help to sway some of the more

moderate members on the Governing Council to back the doves to push through more

aggressive monetary easing. In December, when the ECB disappointed with a more

measured easing package, survey indicators painted a stronger picture of the economy. Our

base case is that the ECB will surprise markets to the upside in the coming months

delivering 40bp of deposit rate cuts (spread over March and June) as well as an increase in

QE (facilitated by a dropping of the deposit rate floor for purchases).

US manufacturing PMI adds to soft global picture

Markit’s US manufacturing PMI fell to 51 in February from 52.4 in January, leaving it at its

lowest level since October 2012. The details of the report were generally weak, with the new

orders index falling more than the headline. This survey follows on the heels of declines in

other nationwide surveys in the US, such homebuilder confidence and consumer sentiment

(though those are coming down from higher levels). Overall, February’s PMI surveys add to

the soft global picture and suggest the global economy remains stuck in a soft patch. We

think lackluster growth will persist for a while followed by a moderate improvement later in

the year.

3 Daily Insight – Eurozone slows down - 23 February 2016

Find out more about Group Economics at: https://insights.abnamro.nl/en/

DISCLAIMER ABN AMRO Bank Gustav Mahlerlaan 10 (visiting address) P.O. Box 283 1000 EA Amsterdam The Netherlands This document has been prepared by ABN AMRO. It is solely intended to provide financial and general information on economics. The information in this document is strictly proprietary and is being supplied to you solely for your information. It may not (in whole or in part) be reproduced, distributed or passed to a third party or used for any other purposes than stated above. This document is informative in nature and does not constitute an offer of securities to the public, nor a solicitation to make such an offer. No reliance may be placed for any purposes whatsoever on the information, opinions, forecasts and assumptions contained in the document or on its completeness, accuracy or fairness. No representation or warranty, express or implied, is given by or on behalf of ABN AMRO, or any of its directors, officers, agents, affiliates, group companies, or employees as to the accuracy or completeness of the information contained in this document and no liability is accepted for any loss, arising, directly or indirectly, from any use of such information. The views and opinions expressed herein may be subject to change at any given time and ABN AMRO is under no obligation to update the information contained in this document after the date thereof. Before investing in any product of ABN AMRO Bank N.V., you should obtain information on various financial and other risks and any possible restrictions that you and your investments activities may encounter under applicable laws and regulations. If, after reading this document, you consider investing in a product, you are advised to discuss such an investment with your relationship manager or personal advisor and check whether the relevant product –considering the risks involved- is appropriate within your investment activities. The value of your investments may fluctuate. Past performance is no guarantee for future returns. ABN AMRO reserves the right to make amendments to this material. © Copyright 2016 ABN AMRO Bank N.V. and affiliated companies ("ABN AMRO").

Day Date Time Country Key Economic Indicators and Events Period Latest outcome Consensus ABN AMRO

Monday 22/02/2016 10:00:00 EC PMI manufacturing - index Feb P 51.0 52.0 51.8Monday 22/02/2016 10:00:00 EC PMI services - index Feb P 53.0 53.4 53.0Monday 22/02/2016 10:00:00 EC Composite PMI output Feb P 52.7 53.3 52.9Monday 22/02/2016 15:45:00 US Markit - Flash PMI Feb P 51.0

Tuesday 23/02/2016 08:00:00 DE GDP - % qoq, final estimate and details 4Q F 0.3 0.3Tuesday 23/02/2016 08:45:00 FR Business confidence manuf. - index Feb 102.0Tuesday 23/02/2016 10:00:00 DE Ifo - business climate - index Feb 107.3 106.9 106.6Tuesday 23/02/2016 13:00:00 TR Repo rate - % Feb 23 7.5 7.5 7.5Tuesday 23/02/2016 14:00:00 HU Base rate -% Feb 23 1.35 1.35 1.35Tuesday 23/02/2016 15:00:00 US S&P/Case Shiller house price index Dec 0.9 0.9Tuesday 23/02/2016 16:00:00 US Existing home sales - % mom Jan 14.7 -1.5Tuesday 23/02/2016 US Conference Board cons. confidence - index Feb 98.1 97.2 96.5

Wednesday 24/02/2016 16:00:00 US New homes sold - % mom Jan 11 -3

Thursday 25/02/2016 10:00:00 EC M3 growth - % yoy Jan 4.7 4.7Thursday 25/02/2016 10:30:00 GB GDP - % qoq 4Q -2nd 0.5 0.5 0.4Thursday 25/02/2016 11:00:00 EC Core inflation - % yoy Jan F 1.0 1.0 1.0Thursday 25/02/2016 14:30:00 US New durable goods orders - % mom Jan P -5.0 2.0 1.0Thursday 25/02/2016 15:00:00 US FHFA house price index - % mom Dec 0.5 0.6

Friday 26/02/2016 00:30:00 JP CPI - % yoy Jan 0.2 -0.1Friday 26/02/2016 06:30:00 NL Producer confidence manufacturing - index Feb 3.2Friday 26/02/2016 11:00:00 EC Economic sentiment monitor - index Feb 105.0 104.5 104.0Friday 26/02/2016 14:00:00 DE CPI - % yoy Feb P 0.5 0.1 0.2Friday 26/02/2016 14:30:00 US GDP - % qoq annualised 4Q S 0.7 0.5 0.7Friday 26/02/2016 16:00:00 US Univ. of Michigan cons. confidence - index Feb F 90.7 91.0Friday 26/02/2016 16:00:00 US PCE deflator core - % mom Jan 0 0 0Friday 26/02/2016 16:00:00 US PCE deflator core - % yoy Jan 1.4 1.5 1.5

Source: Bloomberg, Reuters, ABN AMRO Group Economics (we provide own forecasts only for selected key variables and events)