The trading week on the European stock exchanges began with a significant setback from Germany. Retail sales recorded a decline of 2.0% in September compared with the previous month, while analysts had still expected an increase of 0.4%. The revision of the previous month’s data was also negative. Instead of the originally reported 1.3%, a mere gain of 1.2% was now shown for August.
The figures thus paint a continuing difficult picture for the German domestic economy. While industry has recently sent positive signals again, consumer sentiment does not appear to have benefited from this so far.
Purchasing Managers’ Indices Paint a Differentiated Picture
In the further course of the day, the purchasing managers’ indices (PMI) for manufacturing in the eurozone moved into focus. This produced a mixed picture that was, overall, somewhat more favourable than the German retail data.
Germany confirmed the growth path in manufacturing with a PMI of 54.2 points. Spain was particularly positively surprising: its purchasing managers’ index rose by 1.2 points to 52.2 points, whereas a decline of 0.6 points had been expected.
The data from France and Italy were less encouraging. Both countries slipped below the 50-point mark with their industrial indicators and thus into contractionary territory.
The figures illustrate that industrial development within the eurozone continues to vary greatly. There can therefore still be no talk of a broad-based recovery.
German Industry Benefits from Government Investments
When assessing the German industrial data, the composition of economic demand should also be taken into account. A significant impulse for industrial activity is likely to come increasingly from government investment. In particular, higher defence spending and the associated orders for the arms industry could support development in parts of the manufacturing sector.
The positive signals from manufacturing should therefore not be overrated. Since government investment in defence may particularly benefit individual industrial sectors, it allows only limited conclusions about overall economic development. The surprisingly weak retail sales rather suggest that the recovery in the broader economy may not yet have arrived.
European Equity Markets Hold Their Own
On the European equity markets, the positive signals from parts of manufacturing were apparently able to at least partially offset the initial disappointment over the German retail sales. The most important leading indices of the eurozone traded slightly in positive territory in the further course of the day.
The differing economic signals are unlikely to completely eliminate uncertainty about the actual strength of the European economy, however. While industry is recording growth again in individual countries, France, the EU’s second-largest economy, is slipping into the contraction zone, and the development of private demand remains a significant uncertainty factor.
