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Eurozone November final manufacturing PMI 58.4 vs 58.6 prelim

  
Analysis, Economy

Latest data released by Markit – 1 December 2021

The preliminary report can be found here. A mixed picture in the manufacturing sector as there were improvements in France and Italy but heavyweight Germany and other peripheries like Spain, Austria and Netherlands saw activity declining last month.

Overall, output showed some stabilisation after the drop since the summer peak but the persistent problems posed by supply bottlenecks and rising cost pressures are going to keep pressuring the outlook towards the year-end. Markit notes that:

“A strong headline PMI reading masks just how tough business conditions are for manufacturers at the moment. Although demand remains strong, as witnessed by a further solid improvement in new order inflows, supply chains continue to deteriorate at a worrying rate. Shortages of inputs have restricted production growth so far in the fourth quarter to the weakest seen over the past year and a half.

“Especially subdued production was again seen in Germany, France and Austria in November, albeit offset by strong performances seen in Italy, Ireland and the Netherlands, which helped lift the overall pace of production growth slightly during the month.

“A record rise in inventories meanwhile reflected increased efforts by manufacturers to build safety stocks, in turn driven by fears of ongoing shortages of inputs in coming months.

“With demand once again outstripping supply, November saw a continuing sellers’ market, pushing prices charged for manufactured goods higher at a rate surpassing anything previously recorded in almost two decades. Higher factory gate prices suggest consumer inflation has further to rise.

“Looking ahead, rising COVID-19 infection rates cast a darkening cloud over the near-term outlook, threatening to further disrupt supply chains while at the same time diverting spending from consumer services to consumer goods again, therefore worsening the imbalance of supply and demand.”

  
Analysis, Economy

Latest data released by Destatis – 25 November 2021

  • GDP (non-seasonally adjusted) +2.5% vs +2.5% y/y prelim
  • GDP (working day adjusted) +2.5% vs +2.5% y/y prelim
Slight delay in the release by the source. The preliminary report can be found here.
Almost no change to the initial report with only the headline revised to being a touch softer but it reaffirms a slightly modest expansion, though weighed down by supply bottlenecks and rising cost pressures in general.
The outlook in Q4 and going into next year is even less optimistic as supply and capacity constraints are still part of the picture, with the worsening COVID-19 situation adding to headwinds for the German economy.

Germany November Ifo business climate index 96.5 vs 96.6 expected

  
Analysis, Economy

Latest data released by Ifo – 24 November 2021

  • Prior 97.7
  • Current conditions 99.0 vs 99.0 expected
  • Prior 100.1
  • Outlook 94.2 vs 95.0 expected
  • Prior 95.4

The readings are more or less in line with estimates, though the outlook index did slide a little more than anticipated – reflecting growing pessimism towards the economy.

Supply bottlenecks, rising cost pressures and now the worsening COVID-19 situation are the key factors weighing on business and economic sentiment and all of which are not going to be resolved any time soon by the looks of it.
That will make for a nervous winter with the worries to spill over to the start of 2022.

Singapore Q3 GDP +7.1% y/y (vs +6.5% expected)

  
Analysis, Economy

Singapore economic growth in the third quarter of 2021,  +1.3% q/q

The Ministry of Trade and Industry (MTI)
  • now sees 2021 GDP growth at around 7.0% (previous forecast 6.0% to 7.0%)
  • sees 2022 GDP growth of 3.0% to 5.0%
  • says the recovery of various sectors of the economy in 2022 is expected to remain uneven
  • says labour shortages likely to keep construction, marine & offshore engineering sectors output below pre-pandemic levels in 2022
A Singaporean MTI official says there is a risk that ongoing supply chain disruptions could push up global inflationary pressures.

Eurozone November flash services PMI 56.6 vs 53.5 expected

  
Analysis, Economy

Latest data released by Markit – 23 November 2021

  • Prior 54.6
  • Manufacturing PMI 58.6 vs 57.3 expected
  • Prior 58.3
  • Composite PMI 55.8 vs 53.2 expected
  • Prior 54.2

The French and German readings earlier served as a prelude to the beats in the overall Eurozone report here, reaffirming a modest improvement in business activity in both the services and manufacturing sector this month.

However, as mentioned here, it belies the ongoing concerns on the outlook and that is arguably the more important detail to be wary about. Markit notes that:

“A stronger expansion of business activity in November defied economists’ expectations of a slowdown, but is unlikely to prevent the eurozone from suffering slower growth in the fourth quarter, especially as rising virus cases look set to cause renewed disruptions to the economy in December.

“The manufacturing sector remains hamstrung by supply delays, restricting production growth to one of the lowest rates seen since the first lockdowns of 2020. The service sector’s improved performance may meanwhile prove frustratingly short-lived if new virus fighting restrictions need to be imposed. The travel and recreation sector has already seen growth deteriorate sharply since the summer.

“With supply delays remaining close to record highs and energy prices spiking higher, upward pressure on prices has meanwhile intensified far above anything previously witnessed by the surveys.

“Not surprisingly, given the mix of supply delays, soaring costs and renewed COVID-19 worries, business optimism has sunk to the lowest since January, adding to near-term downside risks for the eurozone economy.”

French and German PMI readings only as good as they are on paper

  
Analysis, Economy

The PMI beats in France and Germany today come with some caveats

While services and manufacturing output saw an improvement in November, it comes after a period of sluggishness over the past four months and there are little signs that this latest bounce is going to be a meaningful or lasting one.
For one, the boost to services activity may already be stale by the end of the month already (data collected from the PMI readings are up until 19 November) considering that virus restrictions are starting to come back into the picture.
On that front, France is perhaps less impacted than Germany, so I’d take the improvements this month with a pinch of salt until there is evidence that the virus situation in Germany isn’t going to lead to limitations on business activity in the weeks ahead.
Besides that, supply and capacity constraints are still ever persistent and ongoing across the region. That is weighing on overall business sentiment while also keeping input and output costs elevated.
Eventually, the latter will feed into higher inflation pressures and in turn perhaps weigh on client and domestic demand in general.
So, while the readings are good on paper today, that is merely what it has to offer. The details reveal that there are troubling times perhaps just around the corner for Europe.

 

Wall Street Journal says global supply-chain woes are beginning to recede, still danger

  
Analysis, Economy

An article in the Journal says while supply disruptions are easing there are still blockages to be dealt with.

WSJ on improvements:
  • most big U.S. retailers have imported what they need for the holiday season, gradually opening up space on the front end of the trip
  •  The cost to move a container across the Pacific fell by more than a quarter in the week ended Nov. 12, the biggest decline in two years. Rates rose about 5% this week to about $14,700 per 40-foot container and are still more than three times year-ago levels, according to the Freightos Baltic Index.
  • German shipowner Jan Held said congestion, particularly in Asia, is getting better.
However:
  • ongoing port congestion in the U.S., shortages of truck drivers and elevated global freight rates continue to hang over any recovery. The risk of more extreme weather and flare-ups of Covid-19 cases can also threaten to clog up supply chains again.
supply chain blockages
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