Overall PMI data for the EU was at 54.6, just as expected by analysts. The PMI data for individual economies in the EU, however, reveal a much slower growth in European investment. The PMI index tracks the purchases and investments of large enterprises, with a value above 50 indicating expansion and a value below 50 indicating contraction.
Although data for France and Germany were in line with expectations, data for Italy pointed to a lack of investment in the economy, likely borne of weak employment and growth, as well as undertainties surrounding the Italian budget.
PMI for Italy for August is 50.1 while expectations were for 51.1. These values are right at the threshold between expansion and contraction. This signifies a sharp decline from last month's values as well: 51.5.
In the mid-term, the Italian PMI should be tracked because Italy will likely be the first economy to contract. This means that an economic contraction in Italy will likely be the precursor to a contraction in the EU as a whole. As we described today, decisive for the euro will be the budget proposal from the Italian government on Sept. 27:
EUR/USD: Italian budget and technical picture
EUR/CAD "Sell" - EUR overvalued
Source: Bloomberg Finance L.P.
Chart: Used with permission of Bloomberg Finance L.P.
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