Positive Signs Brighten the Eurozone Outlook

August brought a bit better industrial production report from Germany, a positive for the outlook though manufacturing remains under pressure. Production rose in August, while July was revised upwards. This was a modest uptick, perhaps pointing to a slow stabilization of the industrial sector; but other positives in Europe’s largest economy also rolled through in the past week or so. August retail sales beat expectations with July revised up. Germany’s unemployment rolls dropped a bit and the unemployment rate remains at a post-reunification low of 5% — as it has all year.

There are positives elsewhere in Europe as well. It’s worth remembering that most of Europe’s large country composite PMIs are above 50, i.e., in expansion territory — see graph below — and even Germany is just a bit shy at 48.5, leaving the Eurozone composite above 50. In our view, if Europe’s manufacturing sector begins to show some life, growth will move out of the recession risk zone quickly.

Eurozone Composite PMIs, September

Source: Bloomberg and Voya Investment Management

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