The Widening Gap Between Europe’s ‘Hard’ and ‘Soft’ Data

Flash PMI data for Europe’s manufacturing sector, at 54.9 for December, paints an ever more positive picture, having surpassed the most recent high reached in early 2014 to retake levels not seen since 2011. The problem? Hard data (i.e. industrial production, released yesterday) isn’t keeping pace with the increasingly optimistic survey data.

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We’ll have to wait until January 12th for the November industrial production data to be released to find out if it is better or worse than October’s 0.60%yoy gain. So far this year, that statistic has only exceeded the previous month’s reading four times (blue bars). The moves are less pronounced in the PMI survey, but the trend is clearly better as the month-to-month change has been positive close to 60% of the time (red bars).

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A look at the industrial production data for the euro area’s four largest economies– all of which remain low and have slowed since earlier this year– doesn’t exactly offer much hope for the ‘hard’ data to catch up to the trend in the ‘soft’ data.

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With industrial production already near its long-term (20-year) average, we must ask ourselves whether it is more likely that PMI data moderates somewhat, turning back towards its own long-term average of 51.4.

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