Slowing Growth and Lingering Concerns: Eurozone Economy Faces Headwinds
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The latest data show that eurozone growth is not picking up, with services now also losing steam. While it’s not all downhill from here, subdued growth is the best we can hope for. Inflation is now clearly coming down, but the European Central Bank is still set for two more rate hikes.
(Overly?) optimistic ECB growth outlook
After negative growth over the winter quarters, the ECB’s staff forecasts pencil in a gradual acceleration of eurozone GDP growth to 0.3%, both in the second and third quarters of this year, and 0.4% from the fourth quarter onward. However, eyeballing the most recent data, it doesn’t look as if the eurozone economy is accelerating – on the contrary.
The first real indicators for the second quarter, such as retail sales and industrial production, actually came out below the average of the first quarter. And sentiment indicators for May and June rather point to further deterioration. The €-coin indicator, a monthly tracker of GDP growth, averaged -0.3% for April and May. In that regard, we fear that second-quarter growth will be close to 0%, with a non-negligible probability of negative growth.
Manufacturing in recession and services is slowing
