Euro zone

Weak industrial performance continues to weigh on EMU economy

Autumn grey tones dominate the economic picture in the euro zone in September 2019. The brightening in August was therefore only temporary. At any rate, this is the result of our calculations for the DZ BANK Euro Indicator, which can indicate economic turning points at an early stage. In the past month, the euro indicator fell by 0.2 percent. With a value of 98.5 points, it is almost exactly at the July level and thus the lowest level for around three years. Compared to the previous year, the indicator lost 1.5 percent. The gap in the J/J rate has narrowed since the beginning of 2019, indicating that at least the pace of economic deterioration has slowed in recent months. In August, surprisingly positive data from the industrial sector set the tone and boosted the euro indicator. In September, industry data now pointed in the opposite direction again. The survey of…

Inflation rate in the euro zone falls below the 1.0 percent mark

Consumer price inflation in the euro area weakened in September. According to the flash estimate, the annual rate of inflation in the currency area was 0.9 percent. In the previous month it was still at 1.0 percent. At the country level, there was a uniform downward trend in prices. In Germany, the Harmonized Index of Consumer Prices (HICP) fell from 1.0 to 0.9 percent, in France it fell from 1.3 to 1.1 percent. The inflation rate is significantly lower in Italy and Spain. Spanish consumer prices rose by only 0.2 percent year-on-year compared with 0.4 percent in the previous month. In Italy, the annual rate fell from 0.5 to 0.3 per cent. The rise in the price of unprocessed food fell sharply and European consumers again had to pay less for energy goods than in the previous year. The fact that unprocessed food was comparatively cheap in September may be…

Austria faces difficult government formation

Austria has voted. As expected, the ÖVP won the National Council elections by a considerable margin. However, the increase in votes to about 38.4% (official final result without postal vote) was somewhat higher than expected. After a break of several months, Sebastian Kurz is likely to become Austrian Federal Chancellor again. But the crucial question is: Who will be the new ally of the ÖVP? After the surprisingly strong performance of the Greens, the ÖVP has three possible partners at its disposal: SPÖ, FPÖ and Greens. The ÖVP has the largest overlap in terms of content despite the affair and the previous coalition break with the FPÖ. In view of the now shifted balance of power, the ÖVP would also set the tone even more clearly in a turquoise-blue alliance. It is also clear, however, that voters are currently very critical of the FPÖ. Kurz believes that a relaunch of…

Purchasing managers‘ indices in the euro zone: Bad mood in September

According to the September survey, the comprehensive composite purchasing managers‘ index for the euro zone lost 1.5 points and at 50.4 points (75-month low) is only slightly above the growth threshold of 50 index points. The decisive factor was a significant decline in demand from service providers and industry. In particular, the downturn in industry has accelerated again, and it seems to be increasingly the case that the previously robust services sector is being pulled down as well. According to IHS Markit, sentiment barometers in the entire currency area have been lower than they have been since 2013. The German economy, and German industry in particular, appears to be increasingly at the centre of economic weakness. And according to business expectations, there is no turn for the better in sight. At the end of the third quarter, the growth prospects for the euro zone are clouding over on the basis…

ECB pushes investors out of the market

Bond purchase programmes by central banks represent massive market interventions that have a lasting effect on supply and demand. The ECB’s first QE programme, which was launched in spring 2015, also had a noticeable impact on EMU’s capital account. In 2014, foreign investors had bought EUR 114 billion in EMU bonds. In 2015, however, this sum was reduced to EUR 30 billion. In the following three years, the situation turned around and foreign investors sold an impressive EUR 470 billion in EMU bonds. Domestic investors also did not remain unaffected by the massive intervention of the ECB: they fled en masse into foreign bonds and shares (EUR 1,500 billion in 2015-2018). With the end of the programme in December 2018, however, the tide turned again. In the first seven months of this year, purchases of EMU bonds from abroad amounted to an impressive EUR 213 billion. French, Italian and German…

Acting at the frontier

The reactivation of the bond purchase program in combination with rising government debt can quickly lead to rising yields. The ECB will reactivate the bond purchase programme, which can now be regarded as an instrument of monetary policy equivalent to interest rate policy. This time, however, the purchase program was not given an end date, which can quickly lead to problems. Government bonds claim the largest part of the planned purchase volume of 20 billion euros per month for themselves, which, according to estimates, gives the ECB the opportunity to buy government bonds until the end of 2020. At the same time, an end to ECB purchases is associated with inflation close to the target of almost two percent, which even ECB forecasters do not foresee up to and including 2021. Changes to the issuer limit or the capital key could prolong government bond purchases, but are associated with legal…

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