Economic Outlook: Eurozone’s Growth Barely Picking Up After A Rather Weak Performance in 2018

Economic Outlook: Eurozone's Growth Barely Picking Up After A Rather Weak Performance in 2018

Economic Outlook: Eurozone’s Growth Barely Picking Up After A Rather Weak Performance in 2018

This week’s Eurozone economic data will worry the ECB even more. The figures from last year confirmed that the economy stuttered again in Q4 2018, with growth barely picking up after a Q3’s weak performance. Downbeat sentiment, troubles in the manufacturing sector and the unwinding of inventories weighed on the domestic economy. A trend that has been carried over for the beginning of 2019 as the manufacturing PMI slumped in March again, suggesting that the sector is still reeling from a slowing global economy and a bruised car sector.

“Manufacturing Purchasing Managers indices in the Eurozone came in lower than expected for March, pointing to continued weakness in the economy. Furthermore, Eurozone consumer prices are rising at an ever slower rate. Momentum has been waning for two decades,” recently commented Murray Gunn, Head of Research for Elliott Wave International’s Global Market Perspective

The economic backdrop remains somber in 2019, however, with heightened uncertainty over Brexit and tariffs on the automobile industry. Furthermore, recent signs have emerged of a tentative stabilization. Retail sales jumped in January and the unemployment rate held at a multi-year low, boding well for household spending. Low oil prices, meanwhile, should keep inflation and the import bill in check. Although economic sentiment continued to fall in February, the pace of decline moderated significantly.

“This week’s Eurozone inflation data for March was lower than expected with the core rate (excluding food and energy) coming in at 0.8% year-on-year,” continued Mr Gunn, “The core rate is the European Central Bank’s (ECB) preferred measurement and so this latest downturn will worry it, especially given that the ECB declared victory over deflation last year. The Eurozone core inflation has been in a disinflationary trend (meaning that prices are rising at an ever slower rate) since 2002. Clearly, there is an entrenched mood in the minds of Eurozone economic participants which is suppressing consumer prices.”

Growth forecast is disappointing too, with all eyes on the ongoing woes in the manufacturing sector. Risks to activity linger from automobile tariffs, political uncertainty and sluggish global demand. Nevertheless, a tightening labor market, contained inflation and accommodative monetary policy should provide some relief. FocusEconomics analysts expect growth of 1.3% in 2019, which is down 0.1 percentage points from last month’s forecast, and 1.4% in 2020.

Besides, pointed out the expert, all of this rather negative economic perspectives are embraced by a 19-year (and counting) bear market in the EuroSTOXX stock market index. “Our analysis maintains that the Eurozone bear market is not yet over. It doesn’t have to follow the stock market, but we would not be surprised to see the Eurozone consumer price index start to register declines in the future,” he concluded.