GDP growth is likely to continue to weaken in the euro area at least until spring 2019. This is shown by the current data for DZ BANK’s Euro-Indicator, which fell for the tenth consecutive time in November. The Euro-Indicator has recently shed 0.2 percent, falling to a level of 99.3 points and is thus now 2.0 per cent lower than in the previous year. As our leading indicator is able to forecast the economic trend for the coming one to two quarters with a high degree of reliability, no growth trend reversal may be expected in the euro area until spring 2019 at the earliest.
In November six of our nine individual indicators charted a weaker trend. However, unlike in the previous months, the downside movement did not start in the industrial sector this time. Whereas all three key metrics from the manufacturing industry (incoming orders, production forecasts, purchasing managers’ index) were in the red in October, in November there were some initial glimmers of hope for orders and the production forecasts. Both indicators showed a slight improvement while sentiment among the purchasing managers deteriorated only minimally.
On the other hand, private households also throttled back their expectations for growth and incomes in November. The economic expectations are admittedly still better than the multi-year average, but are still at the lowest level since spring 2017. The appetite for big-ticket purchases is suffering somewhat from consumers’ mounting scepticism. The corresponding ratio is admittedly still above the average, but has fallen recently.
The stimuli from the financial markets also tended to be on the negative side in November. Share prices fell for the fourth consecutive month, albeit no longer as steeply as in October. The yields on Bunds with a 10-year residual maturity came down again in the past month, reducing the gap to the money-market rates somewhat. The higher inflation rate also led to a decline in real money supply growth.
So overall the bearish trend continues, but at a slower pace. The glimmers of hope from the industrial sector, which had previously taken a particularly severe beating, together with the recent news on the trade dispute between the USA and China have created at least some hope of the Euro-Indicator’s charting a trend reversal before the end of the year.