(CEP News) - Economists are expecting the manufacturing and services purchasing managers indexes, both for Germany and the euro zone as a whole, to stabilize in February.

On Friday, Markit Economics will release the advance estimates for the manufacturing and services PMIs out of Germany. The manufacturing index is expected to rebound slightly to 32.5 after falling to 32.0 in the previous month. On the other hand, the services PMI is forecast to fall further to 45.0 from January’s 45.2 level.

While having penciled in a slight improvement in the manufacturing PMI to 33.0 in February, Commerzbank analyst Ralph Solveen was quick to say that the estimate indicated more of a stabilization rather than the beginning of a recovery in the manufacturing sector.

“These indicators are already on a very low level,” Solveen said. With sentiment indicators and PMIs having remained broadly unchanged in the previous month, “we think in Germany, we can see some stabilization here.”

Despite the median consensus expecting a mild uptick in the manufacturing index, the analyst said that a stronger market reaction was likely following an improvement in the PMI rather than if the indicator were to back down in February.

“(A further rise in the PMI) would add to these first signs of hope that we have seen in the January indicators after strong falls in the months ago,” Solveen said. “I think that would give a ray of hope that we would be at the trough.”

M. M. Warburg economist Carsten Klude is also looking for a modest improvement in the manufacturing PMI and has forecast 33.2 for February.

“The idea behind (the improvement) is that all the fiscal stimulus programs that have been announced will lead to a slight improvement in the feeling of companies,” Klude explained.

However, the economist stressed that, despite the expected increase, the indicator would still be at depressed levels. “Even here, the conclusion is ‘only a stabilization at a very low level’,” Klude said. “Nothing more than this”

Turning to the services PMI, Klude said that, with little negative news recently, especially out of the financial sector, he expects the indicator to improve slightly to 46.1. However, once again Klude stressed that this forecast represented more of a stabilization rather than the beginning of an upward trend.

“What we have to admit is that there was a very fast deterioration since the bust of Lehman Brothers and all that we can see now is a stabilization at very low levels,” Klude said. “We only have slower falling negative growth rates.”

Following the German PMI release, Markit Economics will publish its advance estimates for the euro zone manufacturing and services PMIs, as well as the composite index.

Currently, the manufacturing PMI is expected to rise modestly to 35.0 in February from 34.4, while the services PMI is forecast to improve to 42.5, up 0.3 points from January’s figure. Taking the two PMIs together, the composite index is forecast to improve to 38.5 from 38.3.

Expecting a slight pickup in both PMIs, ING Wholesale Banking senior economist Martin van Vliet said that the modest gain will further raise hopes that the pace of economic contraction in Q4 (1.5% q/q) is not repeated in the first quarter of this year.

“This quarter will definitely show a contraction, but surveys like the PMIs give hope that the pace of the contraction will be a bit slower,” van Vliet said, adding that the PMIs on Friday would likely confirm this.

However, van Vliet cautioned against taking the improvement as reason to “rejoice” and expect to soon see light at the end of the tunnel.

“The PMIs, both the manufacturing and services will be consistent with further sharp contraction,” van Vliet said. “The trough in economic activity is definitely not near. I think the only message is that we have hit the trough in terms of the pace of the economic contraction.”

By Todd Wailoo, twailoo@economicnews.ca

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