Further deterioration in the economic outlook

In June, the economic outlook in the Eurozone deteriorated further. DZ BANK’s Euro-Indicator fell slightly, down 0.2 percent compared with the previous month. The indicator now stands at 98.8 points, after 99.0 points in May. By contrast, there was a minimal improvement on the year-ago figure, with the annual change rate rising from -1.8 to -1.7 per cent.

The surprising improvement in some economic indicators in the previous month thus turned out to be temporary. The economic trend in the Eurozone remains negative. However, this downward trend has been relatively flat since the beginning of the year, which is also reflected in the fact that the Euro-Indicator’s annual rate of change has tended to rise again somewhat since its low at the beginning of 2019. An economic crash is therefore not to be expected in the coming months.

The industrial sector continues to be at the centre of the economic downturn. In June, this was reflected above all in the deterioration in companies‘ production forecasts. They have pared back the gains of the previous month and are moving close to a six-year low. There has also been no improvement in sentiment among purchasing managers in the manufacturing sector. The IHS-Markit survey reports a renewed decline in orders and production in June, which is weighing on the European industrial sector.

On the other hand, sentiment in private households in the Eurozone is still not bad, despite the last few months having shown a certain cooling in this regard. Consumers remain quite optimistic about their financial situation, which can also be explained by the still good labour market situation. This means that consumer willingness to make major purchases has not yet been very strongly impaired by the economic slowdown.

On financial markets, the changed expectations with regard to monetary policy in June were reflected not least in falling yields for long-maturity German government bonds. This also further narrowed the interest rate spread between the capital market and the money market. The spread is now only slightly above zero and has thus fallen to its lowest level for more than ten years. A flat or even inverted yield curve is generally regarded as a negative economic signal and can herald a recession.

For the past second quarter, recent performance of the Euro-Indicator suggests only weak growth in the Eurozone. The slight stabilisation, which the indicator reflected at the beginning of 2019, makes a slide into recession rather unlikely in spring. At present, our Euro-Indicator suggests a continued period of economic weakness as opposed to a collapse.

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