Let’s take a look at weaker than expected reports from the Eurozone in aggregate, and France and Germany in particular.


The Markit Flash France PMI shows French private sector output fell for seventh successive month.

Key points:

  • Flash France Composite Output Index rises to 48.4 (48.2 in October), 2-month high
  • Flash France Services Activity Index climbs to 48.8 (48.3 in October), 3-month high
  • Flash France Manufacturing Output Index falls to 46.5 (48.0 in October ), 3-month low
  • Flash France Manufacturing PMI drops to 47.6 (48.5 in October ), 3-month low


While service providers reported the slowest fall in activity of the current three-month period of decline, manufacturers indicated the sharpest reduction in output since August. Lower output at French private sector companies reflected a further decrease in new business. November marked the third consecutive month in which new work has fallen, with the rate of decline accelerating to the sharpest since June 2013.

Employment in the French private sector continued to fall in the latest survey period, in line with the trend observed since November 2013.

French private sector companies reported another drop in outstanding business during November. The latest fall was the seventh in successive months and the sharpest since M ay 2013. Service providers indicated an accelerated decline in backlogs, whereas manufacturers reported a slightly slower fall.

Price trends continued to diverge in November. Input costs rose, with the latest increase the fastest in three months, albeit modest over all. Service providers and manufacturers reported similar rates of input price inflation. However, output prices fell further, amid reports of strong competitive pressures.

My comments on France

With falling commodity prices, especially oil, why have input costs risen? Labor?

Whatever the reason, margins are shrinking rapidly because prices paid have risen, while prices received for final goods and services dropped. VAT collection will decline as well.


The Markit Flash Germany PMI show Activity at 16-month low as new orders stagnate.

Key points:

  • Flash Germany Composite Output Index at 52.1 (53.9 in October), 16-month low.
  • Flash Germany Services Activity Index at 52.1 (54.4 in October), 16-month low.
  • Flash Germany Manufacturing PMI at 50.0 (51.4 in October), 2-month low.
  • Flash Germany Manufacturing Output Index at 52.0 (52.8 in October), 2-month low.


November’s flash data signalled a further slowing in private sector output growth in Germany, as highlighted by the seasonally adjusted Markit Flash Germany Composite Output Index falling from 53.9 in October to 52.1. While activity has now risen for 19 months running, the pace of expansion was the slowest since July last year, with companies commenting on a lack of new business. Sector data suggested that output growth slowed at both manufacturers and service providers.

The labour market showed further resilience to the growth slowdown in Germany’s private sector, with companies increasing their workforce numbers for the thirteenth month running. The rate of job creation slowed, however, to a three-month low.

German private sector companies signalled little change in input costs on the month, ending a 16-month spell of inflation. While lower oil and fuel prices pushed costs down at some companies, higher wages attributed to the upcoming introduction of a minimum wage drove input prices higher at others.

Companies continued to reduce their selling prices in November and largely attributed this to sharper competition. While the rate of price discounting was marginal overall, it was nevertheless the sharpest since April last year.

My Comments on Germany

Confirming my above suspicions, labor prices are rising even though output prices drop. The situation in France is likely the same. Thus, we have the answer to my above questions.

However, we now have another question: How is France supposed to compete with Germany if French wages rise along with German wages?

And what about profit margins with rising wages and falling output prices? That cannot bode well for employment in either country actually.


Precisely in accordance with Germany (now the entire “core” of Europe), the Markit Flash Eurozone PMI signals weakest eurozone growth for 16 months.

Key points:

  • Flash Eurozone PMI Composite Output Index at 51.4 (52.1 in October). 16-month low.
  • Flash Eurozone Services PMI Activity Index at 51.3 (52.3 in October). 11-month low.
  • Flash Eurozone Manufacturing PMI at 50.4 (50.6 in October). 2-month low.
  • Flash Eurozone Manufacturing PMI Output Index at 51. 8 (51.5 in October ). 4-month high.


The pace of economic growth in the euro area slowed to a 16- month low in November, according to the Markit Eurozone PMI. The headline index, which measures business activity in the manufacturing and services economies, fell from 52.1 in October to 51.4, its lowest since July of last year. Manufacturing output growth picked up slightly to the highest for four months, but the rate of expansion remained only modest. Growth in the service sector meanwhile eased for a fourth successive month to the weakest since last December. New orders fell very marginally, declining for the first time since July of last year. Orders fell for a third successive month in manufacturing, dropping at the fastest rate since May of last year, while inflows of new business in the services sector slowed to near- stagnation, registering the smallest rise since August of last year.

Overall backlogs of work fell at the fastest rate since June 2013, dropping for a sixth successive month. Levels of work-in-hand were down in both manufacturing and services.

Markit Comments

Chris Williamson, Chief Economist at Markit said …

“A fall in the eurozone PMI to a 16-month low raises the risk of the region slipping back into a renewed downturn. The single currency area is struggling to eke out any growth, with the PMI indicating that GDP is likely to have risen by just 0.1 – 0.2% in the fourth quarter. A drop in new orders for the first time in almost one-and-a-half years, albeit only very marginal, suggests growth could slow further in December.

France remains a key concern, with business activity falling for a seventh successive month and demand for goods and services deteriorating at a faster rate. Growth in Germany has meanwhile slowed to the weakest since the summer of last year, with demand stagnating. The rest of the region as a whole continues to outperform the two ‘core’ countries, though even here the rate of expansion has cooled.

Policymakers will no doubt be disappointed that recent announcements and stimulus measures are showing no signs of reviving growth. The deteriorating trend in the surveys will add to pressure for the ECB to do more to boost the economy without waiting to gauge the effectiveness of previously-announced initiatives.”

Mike “Mish” Shedlock