DZ BANK Euro-Indikator: The signs point to further cooling

further course of the year. This can be seen from the current trend for the DZ BANK Euro-Indikator, which in September posted the eighth consecutive drop. The indicator fell in the past month by 0.2 percent to a level of exactly 100 points. Compared to the same month the prior year, the indicator has thus shed 0.9 percent, with the decrease having been 0.4 percent in the previous month.

As in the prior months, the key figures for industry were the single largest factor behind the decline in the Euro-Indikator. In September, manufacturers’ production output expectations fell to the lowest point since April 2017. The Markit survey of purchasing managers shows that momentum in the EMU’s industrial sector is waning and in the past month reported the weakest growth in two years. The figure for new export-trade orders actually recorded the lowest value in more than five years, demonstrating the significant weakening in global trade.

In the Eurozone, thanks to increasing employment and rising incomes consumer confidence has remained at a relatively high level, but has noticeably cooled since the January high. In September, both private households’ economic expectations and their income prospects were dampened, which also led to a decrease in their willingness to make larger purchases. This suggests a somewhat more sceptical assessment of things as regards the further course of Euroland consumer demand.

In recent weeks, the financial markets have also not given cause for economic optimism. Share prices fell almost two percent in September measured in terms of the MSCI index for the Eurozone. Since the beginning of the year, equities have tended slightly downward. The interest differential between the capital and money markets grew a little further on average for September, which in itself is a positive sign for the economic outlook.

All in all, the Euro-Indikator thus points to the EMU economic cycle weakening further. The macroeconomic growth rates may even be somewhat lower in the second half than they were in first-half 2018. However, this is not grounds for forecasting an imminent recession. Given the considerable political risks to the business cycle (faltering Brexit negotiations, unpredictable government in Italy, possible escalation of the trade conflict with the USA) such a development can, however, no longer be excluded.


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