There are no signs of a Euro Area rebound  regarding economic activity  in the short term, according to data from our CEIC Leading Indicator.

The indicator decreased to 87.2 in October, a reading way below the long-run trend of 100, which divides positive and negative outlook. The stark contrast between the levels of performance of manufacturing and services remained. Manufacturing PMI kept trending downwards in Q3, reaching a 2019 low of 45.7 in September before it increased marginally to 45.9 in October. In contrast, services PMI remains above the threshold of 50, standing at 52.2 in October. Composite PMI also persisted in expansionary territory at 50.6 in October.

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Business confidence as measured by the business climate indicator remained predominantly negative in Q3 and in the beginning of Q4, down to -0.23% in November from its latest positive reading of 0.13% in August. Consumers are still mostly pessimistic as shown by the consumer confidence indicator which scored a 2019 low of -7.6% in October.

The IMF revised downwards its growth projections for the eurozone to 1.2% in 2019. The institution cut its 2019 estimates for both Germany and France to 0.5% and 1.2% from 0.8% and 1.3%, respectively. Growth is expected to remain modest in 2020, at 1.2% in Germany and at 1.3% in France. Economic growth in Italy is seen at 0.5% and that of Spain is projected at 1.8% y/y. Inflation in the eurozone is forecast to be 1.2% in 2019, still way below the ECB’s goal.

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Although expanding, the volume of exports remains subject to external risks. Boris Johnson’s decisive victory in the UK elections in December did little to assure the eurozone that a good deal would be achieved. Across the Atlantic, the tariffs that the US imposed on up to EUR 6.7bn of EU goods can drastically reduce trade outflows. On the positive side, the new European Commission finally assumed office on December 1, after it had been approved by the European Parliament on November 27, leading to greater stability in the bloc’s leadership.

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Mario Draghi’s tenure as ECB chief came to an end in an environment of slipping inflation despite the ultra-loose monetary policy exercised by his administration. Former IMF boss and Draghi successor Christine Lagarde inherited a rather undesirable situation of sluggish growth and limited room for further policy easing. She has promised to assess how the ECB does business and the current inflation targets.

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Furthermore, Lagarde has taken it upon herself to contribute to the fight against climate change through the means that the new position gives her. As for her approach to the current ECB ultra-loose stance, Lagarde has reassured the markets that no policy turns are expected in the short term as inflation picked up in November and growth accelerated in the third quarter.

Access our Q4 report suite, including the full CEIC Euro Area Economy in a Snapshot Q4 2019 Report here.