Stabilisation in Europe
Eurozone growth has slown sharply over the past 12 months, but PMI survey returns are now in line with a rate close to 1%. Business data are pointing towards healthy consumption levels. Retail sales excluding car sales continue to trend higher and registrations are returning to normal following disruption caused by the new anti-pollution standards (WLTP).
In Germany, the manufacturing sector is in recession, but industrial orders excluding volatile components are now rising slightly, following steep falls in the last 18 months, opening the door to stabilisation. For the moment, the downturn in manufacturing activity has not had a major impact on employment. Although new job creations have clearly been slowing, resorting to partial unemployment measures remains limited, unlike in 2008-09.
In Italy, the new government’s more conciliating approach could help to lower spreads and buoy confidence. That said, the Democratic Party–Five Star coalition could prove unstable, putting the main opposition party, The League, in a stronger position for the next elections. The country’s economic fundamentals remain vulnerable over the medium term (low growth potential, high public debt).
In the UK, the future path of Brexit remains unclear and three possible scenarios are on the table: (i) a no-deal exit on October 31st despite the anti-no-deal legislation; (ii) a UK exit on October 31st with a withdrawal agreement following a vote approving either a new Brexit agreement or the one that Theresa May drafted; (iii) a further delay along with an early general election. The impact of a no-deal exit is highly uncertain and the regulatory changes and practical aspects of the withdrawal will likely prove a bigger drag on growth than customs duties.
Glossary:
PMI indices: The Purchasing Managers’ Index (PMI) summarises confidence levels among business purchasing managers who are surveyed to establish if market conditions are expanding, staying the same or contracting.
WLTP: The Worldwide Harmonised Light Vehicle Test Procedure (WLTP) measures fuel consumption as well as pollutant and CO2 emissions.
See also : China| Economic outlook S2 2019
The opinion expressed above is dated September 2019 and is liable to change. Latest available data is used.
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