German PMI Numbers Indicate an About-Turn for Europe

Alan Penny

24 January 2020

3 min read

  • German Manufacturing PMI is a leading indicator
  • Flash numbers take temperature of industry sectors prior to final numbers
  • EU and French numbers also released

Early on Friday, Germany released PMI figures in both the manufacturing and non-manufacturing varieties. This is a very important figure as it can quite often lead GDP by 12 to 18 months.

Because of this, traders tend to pay attention to these leading indicators. They are surveys of purchasing managers in various crucial sectors of the German economy to see how they view the short-term future. Therefore, they’re important because it’s the purchasing managers who make the decisions that are crucial to the future of manufacturing, deliveries, and the like.

Optimistic results

To kick off the Friday session, the Germans released the Flash Manufacturing PMI figures at 45.2 instead of the expected 44.5. Furthermore, the previous month was revised from 43.4 to a reading of 43.7. This shows that the German economy is starting to turn to the upside, at least in the eyes of manufacturers. This is a crucial fixture in the German economy as it is so highly dependent on exports.

the German economy is starting to turn to the upside, at least in the eyes of manufacturers

Germany also released the Flash Services PMI with a reading of 54.2, which is better than the expected 53. Beyond that, the previous month’s numbers were revised to 52.9 from an original reading of 52.

Traders should keep in mind that these are flash numbers, meaning they are initial numbers. Ultimately, there will be a final reading, but this is a preliminary look at the outlook of purchasing managers. It gives us a heads-up as to where the economy may be going in the future. Therefore, it will have a crucial effect on German stocks and, of course, on the euro itself.

With all that being said, it will be revised to a final reading. Typically, however, the flash numbers are pretty close to what the actual reading would be.

What’s most important is the direction of the number, which in this case is better than anticipated. It is an indication that, perhaps, the German economy is doing better than quite a few traders out there may think. That may lead to more money into this region of the world.

Going forward

The numbers suggest that the German economy will continue to improve and should continue to see money flowing towards it, even though the rest of the European Union is a bit soft.

As a side note, the French Flash Services PMI came out at 51.7, which was lower than the anticipated 52.2 for the month. This shows that the German economy is outperforming France, which is usually the case.

All things being equal, this should help the entire region. That’s because not only has the German economy proven to be about 80% of the European Union’s strength, but the EU Flash Manufacturing PMI number came out at 47.8 instead of the expected 46.9.

The Flash Services PMI came out at 52.2; while lower than the expected figure of 52.9, it is still expansionary, and a good sign in general. The EU is in the midst of trying to stabilize, if not turn around, and these numbers are the latest sign of that happening.

Written By
Alan Penny

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