Eurozone PMI Drops: Is It A Blow For ECB Operations?

Hopes that the European Central Bank’s operations would facilitate a meaningful pick-up in the eurozone economy were dealt a blow by the release of March’s flash Purchase Managers Index (PMI) surveys, according to Capital Economics.

With PMI readings from France and Germany being weaker than what was expected, the fact that private sector activity in the eurozone is faced with increasing contraction is coming to the forefront.

The Markit composite PMI declined from 49.3 in February to 48.7 for March. Manufacturing PMI dropped to 47.7 from 49.0 and services index reduced to 48.7 from 48.78.

Germany’s manufacturing PMI declined to 49.1 for March after touching 50.2 in February. Its services index reduced to 51.8 from 52.8.

For France, the services PMI remained unchanged at 50.0 and the manufacturing PMI tumbled to 47.6 from 50.0.

These figures can be real bad news given previous hopes that industry would drive a solid economic recovery in Germany, reports Capital Economics. There are serious concerns that if the efficient German manufacturing sector gets mired in recession, there would be little hope for other, less healthier parts of the eurozone economy.

Capital Economics points out that the message appeared to be underlined by another notable development in the eurozone last week. It was the further rise in Spanish government bond yields. Ten-year yields rose another 30 basis points or so to go above 5.5 percent for the first time since the first half of January.

The rise in yields is perhaps a warning that the ECB’s cash has not addressed the fiscal pressures facing a number of eurozone governments, notes Capital Economics.