EMU economy: Still no sign of a turnaround

Momentum in the Eurozone economy has been slowing down gradually since Q4 2017, and, so far, there are no signs of an end to this trend. If anything, the current results of DZ BANK’s Euro-Indicator suggest that the Eurozone economy could continue to weaken until the beginning of 2019. After all, the Euro-Indicator fell by 0.5 per cent in October 2018 − its sharpest monthly fall since March of this year. Our leading indicator for the Euro area economy is now down by 1.5 per cent as compared to the previous year, against a decline of 0.9 per cent in September.

As was already the case in the last few months, indicators from the industrial sector made the biggest contribution to the latest decline. According to the European Commission’s survey in October, production expectations in the manufacturing sector have not been this low for around 18 months. However, a long-term comparison shows that they are still at quite a high level. The survey of purchasing managers in the Eurozone industry also shows dwindling confidence. The IHS Markit survey indicates that production growth had recently fallen to its weakest level since December 2014. In fact, industrial export orders were down in negative territory for the first time since June 2013.

Last month, the correction in the equity markets in the Eurozone also had a negative impact on the Euro-Indicator. On average over the month of October, the MSCI Index for the Eurozone fell by just under five per cent, which is after all, its sharpest correction since the beginning of 2016. Meanwhile, the yield trend in October had no significant impact: neither the yields of long-dated Bunds, nor money market rates showed any significant movement based on a monthly average. Consequently, the influence of the interest differential on the Euro-Indicator was hardly a factor.

Consumer confidence bucked the trend last month, being generally positive. Although the expectations of private households in relation to the future state of the economy deteriorated slightly in October, consumers are definitely optimistic as regards their own finances. Their willingness to make big-ticket purchases therefore remains high.

The decline in the Euro-Indicator in October is the ninth minus figure in a row. The last time we saw such a negative run was during the financial crisis in 2008.

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