Economic activity in the Eurozone slowed modestly this month, according to private sector data published Tuesday, as countries around the world adjust to the reality of a weaker U.S. dollar and persistently low inflation.
IHS Markit's closely-watched Composite PMI index slipped to 57.5 in February, the group said, down from a final January tally of 58.8 but firmly above the 50-point mark that generally separates growth from contraction. Weaker-than-expected readings were also issued for the region's two biggest economies -- France and Germany -- with some of the slowdown pegged to the euro's 3% year-to-date rise against the greenback.
"February saw the Eurozone's growth spurt lose a little momentum, but the rate of expansion remains impressive, putting the region on course for its best quarter for almost 12 years," said IHS Markit's chief economist, Chris Williamson. "The PMI readings for the first two months of the quarter generally provide a reliable guide to official GDP growth, and indicate that the eurozone economy is expanding at a quarterly rate of 0.9% in the opening quarter of 2018."
The IHS report on Germany, the world's third-largest exporter, noted that, "despite remaining robust overall, rates of growth slowed across both manufacturing and services to the weakest for seven and six months respectively" and said the "latest rise in manufacturing new export orders was the least marked for 12 months."
While still robust, the pullback nonetheless illustrates the impact the dollar's recent weakness has had on growth prospects in some of the world's biggest economies. Earlier Wednesday, the IHS Markit/Nikkei Japan Manufacturing Purchasing Managers Index for February fell to 54.0 from 54.8 in the previous month, with chief economist Joe Hayes noting that "recent yen appreciation has coincided with slower new export order growth."
����Stronger Yen starting to hurt Japanese manufacturers as especially export orders slowed in February. Bad news for the very export driven economy. The question now is whether BoJ could feel obliged to act. At least tightening discussion should be postponed for now pic.twitter.com/d78gh103ya— Bjørn T Sillemann (@Bjorn_Sillemann) February 21, 2018
The dollar index, which benchmarks the greenback's strength against a basket of six global currencies, has bounced more than 1.7% from the three-year low it reached last week, and was marked at 89.88 during European trading, but has fallen more than 12% over the past year amid persistently slower-than-expected inflation readings that have kept the Federal Reserve from moving faster on rater increases that would normally follow improvements in both the labor market and the broader economy.
That is unlikely to change in the near term under new Fed chairman Jerome Powell, who will unveil minutes from the central bank's two-day meeting which ended on Jan. 31 later today in Washington, and analysts at Goldman Sachs have warned clients to "expect trend depreciation over the next 12 months" for the greenback.