The service sector is in better condition than the industrial sector

The PMI in August for the industry in the Eurozone was 45.6 compared to 45.8 a month before. A notable negative is Germany, where the industry indicator is again going down. In August, it was 42.1 compared to 43.2 a month before. A rise to 43.4 had been expected. The German industry continues to show weakness with little indication of a swift improvement in this sector. A similar trend is also observable in France, where the August index was 42.1 (consensus 44.4).

After a slightly disappointing reading last month from the service sector in the Eurozone, it was expected that activity in this sector would slightly worsen (consensus at 51.7). The reading, however, turned out to be significantly better: 53.3 compared to 51.9 a month before.

The service sector is in a decisively better condition than the industry, and improvements in this sector have been progressing for several months now. An unprecedented increase was observed in France, where the indicator came in at 55, compared to the expected level of 50.2. Thus, after months of hovering around the 50-point threshold, the French service sector decisively moved into a path of expansion. On the other hand, there is Germany, where the service sector indicator came in at 51.4, marking the third consecutive month of declining readings. Today’s figures do not bode well for the largest economy in the Union.

The composite PMI in August in the Eurozone was 51.2 versus 50.2 a month before. Despite the persistent weakness in the industrial sector, another rebound in the service sector allows for an increase in the aggregate indicator. The service sector has been the engine and it is what keeps economic growth in the Eurozone. The readings, however, do not bode well for economic growth in Germany, where industry is in a slump and the service sector is losing strength.

Bartosz Wałecki, Analyst at Michael / Ström Brokerage House.