Merkel HollandeREUTERS/Tobias SchwarzGerman Chancellor Angela Merkel and French President Francois Hollande at the Petersberg Climate Dialogue conference in Berlin on May 19.
Service and composite PMI figures out for Europe came out on Thursday, and the key takeaway is this: Germany is driving Europe forward, while France is dragging Europe back.
The overall Eurozone PMI beat forecasts.
The purchasing managers' index (PMI) is a measure of whether economies and sectors are expanding or contracting. Anything above 50 signals growth, while anything below signals contraction.
Europe's PMI was 54.3, against a forecast of 54.1. That was driven by Germany beating forecasts by a big margin — an upward revision of an entire point (55 from 54).
We already had a positive flash readings for August, but Germany is doing even better than first thought.
France, meanwhile, is doing much worse. France's flash PMI was 51.3, but on Thursday that got revised way down to 50.2 — more or less stagnation and dangerously close to slipping into decline.
We've already had dreadful manufacturing figures from France earlier this week, with French industry shrinking faster than expected. The service sector is similarly in a worse shape than economists expected — the PMI there was just 50.6, against a forecast of 51.8.
It's not looking good for France.
That effectively means we're looking at a two-tier Europe, one in which the two biggest players are moving in completely different gears.
Right now the "single market" can trundle along as it has been. But this imbalance could cause serious problems further down the line, particularly as Germany has so much power in Europe and a tendency to push tough reforms on those foolish enough to fall into trouble. I made this point when the manufacturing numbers came out.
Here's the breakdown of the PMI figures we got from Markit on Thursday:
  • Europe: composite — 54.3, forecast 54.1; services — 54.4, forecasts 54.3.
  • Spain: services — 59.6, in-line with forecasts.
  • Italy: services — 54.6, beating forecast of 53.
  • France: composite — 50.2, flash was 51.3; services — 50.6, 51.8 predicted; .
  • Germany: composite — 55, flash 54 — services — 54.9, 53.6 predicted.