Friday’s preliminary purchasing managers’ indices (PMIs) for Japan, the eurozone and the US remained very strong and suggest that good cyclical momentum is likely to stretch into the third quarter. The eurozone PMIs reached new highs, signalling strong growth. Despite the uncertainty from the upcoming elections, France surprised to the upside, while Germany seems to have reached a peak. Japan’s index for the manufacturing sector rebounded. It signals that the economy will continue to enjoy the effects of stronger external demand, supporting its exports and industrial production. While private consumption and investment growth still remain rather tepid, the external sector has the potential to lift Q1 gross domestic product growth above the modest expectations. Much of the surrounding Asian region is in a similar position.
According to the preliminary PMIs, strength in these soft indices continued in April. The leading indicators signal that good cyclical momentum will stretch into Q3, at least in the eurozone and Japan. This will keep the European Central Bank on its toes, which, however, signalled its intention to keep its monetary policy unchanged until year-end.
Susan Joho, Economist, Julius Baer