Category Archives: Euro area economy

4/7/20: ifo Institute Eurozone Growth Outlook

Germany's ifo Institute issued a new growth outlook for Eurozone economy:

  • "Overall, the eurozone economy is likely to see a sharp recession in the first half of 2020. 
  • "GDP already contracted in Q1 by 3.6%. 
  • "In Q2, the decline of GDP is forecast to be historic (-12.3%). 
  • "On the other hand, the recovery is likely to be quick supported by massive stimuli in some eurozone countries with GDP growth reaching +8.3% in Q3 and +2.8% in Q4 2020. 
  • "Yet, the GDP level at the end of last year will not be reached by the end of this year."

In 1Q 2020:

  • GDP fell by 3.6%. 
  • "The greatest negative contribution came from private consumption. 
  • "... firms hold back their investments due to liquidity issues and uncertainty on future developments. 
  • "... external demand was weak and caused exports to plunge. 
  • "Economic activity went down by 5.3% (Italy), 5.3% (France) and 5.2% (Spain). Germany was affected less severely with GDP contracting by 2.2%. 
Dynamics into June:
  • "The European Commission’s economic sentiment indicator fell from 94 points in March further to 65 points in April, rebounded somewhat in May and increased strongly in June up to almost 76 points."
  • "The IHS Markit composite purchasing manager’s index reflects a similar development as it dropped from 30 points in March to as low as 14 points in April. In May it recovered to 32 and in June again up to 48 points." Note: Markit PMIs below 50 indicate continued, compounded contraction, as a rise in index from 32 to 48 between May and June means that contraction was weaker in June.
Summary of forecasts:

Headwinds to the above forecast:
  • "Currently, economic projections are made in face of high epidemiological uncertainty. ... This forecast assumes that a second COVID-19 wave will be prevented. The occurrence of a second wave, with containment measures to being introduced again, is thus a downward risk for our forecast. 
  • "Another uncertainty for this forecast is that we are still learning about consumer reactions to containment measures and it is still unclear, how quickly consumption behavior will normalize.
  • "In addition, the liquidity situation of many companies is deteriorating rapidly. An unexpectedly high number of insolvencies might disturb the economic recovery and cause bigger than expected problems for the banking sector. Currently, in many countries new regulations for postponing insolvencies were introduced, which means that these will become evident later than usual, probably not before autumn. 
  • "Also, numerous private households might run into solvency issues due to lower income and a worsening labour market situation."
In contrast, here are the IMF latest forecasts for the euro area:

Markit PMIs:

12/6/19: All’s Well in the Euro Paradise

All is well in the Euro [economy] Paradise...

Via @FT, Germany's latest 10 year bunds auction got off a great start as "the country auctioned 10-year Bunds at a yield of minus 0.24 per cent, according to Germany’s finance agency. The yield was well below the minus 0.07 per cent at the previous 10-year auction in late May. The previous trough of minus 0.11 per cent was recorded in 2016. Notably, demand in Wednesday’s auction was the weakest since late January, with investors placing bids for 1.6-times more than the €22bn that was issued."

Because while the "Euro is forever", economic growth (and the possibility of monetary normalisation) is for never... 

30/10/15: Eurocoin: Not so Sunny on the Growth Horizon…

Eurocoin - a leading growth indicator for Euro area economy published by CEPR and Banca d'Italia - posted second consecutive monthly decline in October, falling to 0.36 from 0.39 in September and down from the recent peak of 0.43 registered in August. This is the weakest reading for the indicator in 6 months.

For what it is worth, the ECB remains stuck in a proverbial monetary corner:

While in historical terms, growth signal of 0.36% (and annualised average over the last 12 months of 1.58%) is above long term average (annualised average growth over the last 15 years of 1.03% or over the last 5 years of 0.57%), growth remains anaemic by all possible comparatives beyond the Euro area.

You can see the less than pleasant specifics on eurocoin drivers for October here: In the nutshell, things are static across all major sectors, with households' optimism is largely flattening; and if we ignore the European Commission survey signals, things are poor for the industrial sector.

9/9/15: That poverty of low [Euro area GDP growth] expectations…

So, apparently, "strong eurozone growth" for 2Q 2015 is fuelling hopes for economic recovery and pushing markets up. Which makes for some funny reading, considering the following:
1) Eurozone GDP grew by a mind-blowing… 0.4% in 2Q 2015 in q/q terms. Which, hold your breath there, matey… was a decline on 0.52% (revised) growth in 1Q 2015.
2) It gets better, yet: growth 'improvement' was down to a rise in exports due to devalued euro (err.. now, who would have thought that to be a reason to cheer?). Exports increase accounted for 0.3% of the total 0.4% of 2Q growth. Full details are here.

The glorious achievement of the Great Patriotic Eurozone Economy under the wise stewardship of [insert a name of a Brussels Directorate or one of the EU Presidents here] was so blindingly obvious that one can't miss it using a mapping of historical past growth rates.

Yes, yes… that is right - the "strong" rate of eurozone growth in 2Q 2015 was exactly the same as that attained in Q4 2014 and identical to Q3 2010 (remember, that was 'blistering' too). 1Q 1999 - 1Q 2008 average quarterly growth rate in the eurozone was 0.56% and that was the period when the euro area was actually showing structural weaknesses compared to other advanced economies. Over the period of 12 months through 2Q 2015, average growth is 0.4% and we call this… err… "strong".

That poverty of low expectations…