BOTTOM LINE: We expect the upcoming European flash PMIs (released on Friday, 22 April) to decline further in April, slightly below consensus expectations in the Euro area (53.5 vs 53.9 expected) and more meaningfully below expectations in the UK (56.4 vs. 58.9 expected). We expect the composite decline to be led by Germany and look for the overall area-wide composite decline to be skewed slightly towards manufacturing. Our forecasts, based on the steer from our forecasting framework, reflect a combination of the still positive but moderating momentum in services activity, worsening supply-chain issues, and weakening sentiment and demand due to the war in Ukraine.
Economic Activity Data
The latest high-frequency and early survey data have evolved as follows in Europe:
- High-frequency data: Our daily activity trackers, which showed a moderation in the pace of recovery in March, have continued to demonstrate positive momentum in recent weeks, especially in Southern Europe and in particular Spain (where an ongoing transportation strike is likely to have weighed on mobility metrics in March significantly). In Germany, mobility data has remained broadly flat but restaurant bookings continued to increase as the number of new covid cases follow a downward trajectory from the peak recorded towards at end of March.
- Early surveys: Early surveys across the Euro area however point towards slowing momentum going into April. Both the current and forward-looking components of the Sentix and ZEW surveys for Germany and the Euro area decreased further in April, after having fallen sharply in March, with the forward-looking components currently at their lowest levels since the start of pandemic. The GfK consumer climate indicator in Germany also edged down in April. In France, Banque de France’s estimates based on its early April survey, which showed a decline in the manufacturing sector in March, indicate slowing but continued positive momentum in the services sector and an improvement in the manufacturing sector as well.
- High-frequency data: Our activity tracker in the UK—which bounced back sharply in late January/early February to around December levels—suggest positive but a meaningful moderation in the economic momentum going into April. Restaurant bookings in the UK have also flattened after reaching November levels in mid-February. While daily card spending has continued to demonstrate fairly robust momentum, on net, high-frequency indicators suggest that the Omicron rebound in the UK is now largely behind us.
- Early surveys: Going into April, early survey data also points towards slowing momentum in the UK. The latest ONS bi-weekly business survey (which includes survey data on business’ turnover until 3 April) suggests that business’ turnover improved in March, after falling steadily through December and early January and then stabilizing by late February. Both the 3m backward and 3m forward output metrics in the CBI survey also improved in March but the ‘3m forward minus 3m backward’ metric edged down, indicating a slowing in momentum. Finally, the GfK consumer confidence barometer fell further in March, reflecting increasing concerns around cost of living pressures in the UK. 8ca1e8f0991046b0a
Optimising over a wide range of input data (including those mentioned above) and statistical models, our framework for forecasting the flash PMIs suggests that the April f lash composite PMIs should soften across both the Euro area and the UK but remain at levels above 50. More specifically :
- Euro area: We expect the composite PMI to decrease by 1.4pts to 53.5 in April, below consensus expectations of 53.9. Across countries, we expect the composite decline to be led by Germany where forward-looking components had weakened most prominently last month, while across sectors, we expect the overall area-wide composite decline to be skewed slightly towards manufacturing.
- UK: After two significant upside surprises in February and March, we expect the UK’s flash composite PMI to moderate sharply in April to 56.4, meaningfully below consensus expectations of 58.9. Our forecasts reflect the incoming evidence on activity momentum in April which appears to have moderated notably as well as the sharp declines in consumer sentiment due to rising inflationary pressures.
Things to Watch
Beyond the headline numbers, we would highlight three areas. First, it will be important to monitor whether suppliers’ delivery times worsen further. High-frequency data on shipping costs suggest persistent bottlenecks but with some signs of improvement. However, suppliers’ delivery times in the Euro area, which remain unusually long, worsened last month for the first time since October last year, likely due to the spill-overs from the war in Ukraine. Second, the April PMIs should provide an indication of inflationary pressures across sectors. Price pressures remain acute in both the UK and Euro area, but the last two prints suggest a growing contribution to overall price pressures from the services sector. Third, the upcoming print should provide another gauge of business sentiment in Europe. After remaining resilient above pre-pandemic levels through the ‘fourth wave’, firms’ expectations in the Euro area fell sharply last month to their lowest level since October 2020, and early April surveys point towards continued weakening in sentiment and growth expectations across Europe.