Category Archives: Eurozone

26/10/20: ifo Institute: German Economic Conditions Deteriorated in October

ifo Institute's latest Business Climate survey data for Germany is pointing to continued weakness in the recovery momentum:

Notably, all four sectors covered remain under water:

Current conditions are deteriorating month-on-month in two sectors, expectations have deteriorated in all four sectors.

3/10/20: Eurocoin Leading Growth Indicator 3Q 2020


Eurocoin, a leading growth indicator for the euro area published by CEPR and Banca d'Italia posted another negative (recessionary) reading in September (-0.31) after marking peak growth contraction of COVID19 pandemic period in August (-0.64). This puts Eurocoin in negative territory for the 6th consecutive month since March 2020. 

Current forecast for 3Q 2020 growth remains at -3.5 percent q/q. Deflationary pressures are also building up. Euro area's 12 months average HICP forecast for 3Q 2020 stands at around 0.6 to 0.5.

As the chart above shows, Eurozone remains deeply in a recessionary territory based on Eurocoin forecasts and inflation dynamics. Longer term growth averages are shown in the chart below:

Overall, as noted above, one must take all leading indicators and forecasts with some serious warnings attached: we are in an environment where past models for forecasting economic aggregates become severely challenged.

22/9/20: COVID19 Update: German Economic Growth Forecasts 2020-2022


Germany's ifo Institute published their forecasts for 2020-2022 today. These represent an improvement on Summer forecasts, but continue to show big impact of the COVID19 pandemic lasting beyond 2021:

Private consumption is expected to be 0.82 percentage points below 2019 at the end of 2022, and barely in line (0.78 percentage points above) with 2018 levels. GDP is forecast to reach 1.34 percentage points above 2019 levels in 2022. Employment levels are projected to stay below 2019 levels through most of 2022, and unemployment numbers are expected to stay above their 2019 levels through the entire 2022. General Government deficits will remain in 2020, 2021 and 2022.

Using pre-2020 trend growth, German economy would have been 1.66 to 1.85 percentage points ahead of the GDP levels now forecast for 2022, which means that under the current forecasts, we can expect recovery to the pre-COVID19 trend GDP by the end of 2024. This assumes ca 1.7 percentage points growth over 2023-2024 horizon, which may be quite optimistic, given prior trend growth rates of 0.975% pa. 

ifo forecasts note the state of economic uncertainty: "The degree of uncertainty in our forecasts is enormous because nobody knows how the coronavirus pandemic will develop, whether there will be a hard Brexit after all, and whether the trade wars will be resolved". Which, of course, highlights the environment of VUCA that we are living in.

17/9/20: Exploding errors: COVID19 and VUCA world of economic growth forecasts


Just as I covered the latest changes in Eurozone growth indicators (, it is worth noting the absolutely massive explosion in forecast errors triggered by the VUCA environment around COVID19 pandemic.

My past and current students know that I am a big fan of looking at risk analysis frameworks from the point of view of their incompleteness, as they exclude environments of deeper uncertainty, complexity and ambiguity in which we live in the real world. Well, here is a good illustration:

You can see an absolute explosion in the error term for growth forecasts vs actual outrun in the three quarters of 2020 so far. The errors are off-the-scale compared to what we witnessed in prior recessions/crises. 

This highlights the fact that during periods of elevated deeper uncertainty, any and all forecasting models run into the technical problem of risk (probabilities and impact assessments) not being representative of the true underlying environment with which we are forced to work.  

17/9/20: Eurocoin Leading Growth Indicator 3Q 2020


Eurocoin, CEPR & Banca d'Italia leading growth indicator for Euro Area economy is pointing to renewed weaknesses in the Eurozone economy in August, falling to its lowest levels in the COVID19 pandemic period:

As the chart above shows, Eurocoin fell from -0.5 in July to -0.64 in August, its lowest reading since June 2009. The forecast September indicator is at -0.30. Through August, we now have five consecutive months of sub-zero readings. Based on July-August data and September forecast, we are looking at a GDP contraction of 3.5 percentage points in 3Q 2020. This is mapped out in the chart below:

As the chart above shows, average annual growth rate in the Eurozone for 2020 is now sitting at -6,33 percent, far worse than the previous low of -0.575 in 2009. In quarterly readings, we now have two actual and one forecast quarters of 2020 all performing worse than the peak of the Global Financial Crisis / Great Recession contraction (see green entry in the chart above).

As before the COVID19 crisis, Eeurozone economy is performing woefully. On no time horizon did Euro area manage to achieve average annual growth of 2% (chart above).