Eurozone: Upswing not a risk despite sentiment setback

The composite purchasing managers' index (PMI) for industry and services in the Eurozone fell to a 3-month low in February. Despite the setback, however, at 57.5 points the sentiment indicator remains at a very high level consistent with strong economic activity. After all, the PMI had reached a near 12-year high of 58.8 in January. Further reassuring evidence in support of sustained strong economic momentum and a favorable growth outlook are indicated by robust employment growth and a renewed improvement in companies’ optimism about the year ahead – this sub-index once again reached a record high. Going forward it is likely that sentiment indicators in the Eurozone will continue to retreat from record highs. However, we do not see this as the end of the current economic upswing. Rather, the sentiment setback is in line with a gradually unfolding normalization of the extraordinarily strong Eurozone growth rates witnessed since late 2016. All in all, following last year's +2.5% GDP growth, we expect Eurozone growth to come in at +2.2% in 2018.