Early Q3 saw the composite (services and manufacturing) Eurozone PMI breach the neutral 50 mark for the first time in 18 months. This performance was well ahead of expectations, boosting European stocks and Crisis Country bonds, and causing price falls in perceived safe haven government bonds;
After six quarters of contraction the region is possibly on the cusp of stabilisation with the long slow contraction coming to a close. Even for the Crisis Countries, forward-looking indicators are suggesting some improvement;
Despite this positivity, the beginning of a uniform, strongly positive trend in economic activity across the entire Eurozone is by no means a sure thing. External demand remains lacklustre, a lack of structural reform continues to weigh on the French economy and Germany is not only considerably exposed to a slowdown in China but is also facing increasingly fierce competition from a recently more competitive Japan. However, this does not entirely rule out an export-led recovery in Germany in 2014, potentially driven by expected stronger US demand.
Source : AEW Europe