The divergence of industry and services in the eurozone: an unprecedented situation? - BNP Paribas

According to Louis Boisset - an analyst at BNP Paribas - the current economic slowdown in the eurozone fits within a more global slowdown that can be seen in both the advanced economies and in the emerging markets. After a robust year in 2017, GDP growth in the eurozone seems to have weakened.

“Structurally, activity in the manufacturing sector is more sensitive to shocks, especially external ones. However, the current situation seems to be rather unprecedented with regards to the eurozone’s short history. For several months, manufacturing PMI is particularly weak compared to the high score reported by the services sector. With the exception of the great financial crisis, this has been the widest gap ever reported since the euro’s creation. This observation is especially true for the German economy, which has a bigger manufacturing sector and higher openness than its trade partners. The absence of a rebound in world trade, confirmation of China’s economic slowdown and uncertainty generated by trade tensions and Brexit negotiations are straining external demand and the manufacturing sector in particular. In fact, manufacturing products still account for about 80% of global exports. How long can this situation last? How long can activity in the services sector resist the troubles in the manufacturing sector? The key lies in the dynamics of domestic demand, and household consumption in particular. Consequently, we should keep a close eye on the job market situation in the short term.”