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Weak Eurozone Survey Data Suggests Below Trend Growth in Q4

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Recent weakness in Eurozone survey data suggests that Eurozone growth is likely to remain below the trend rate in Q4. A broad slew of Eurozone economic indicators, as well as indicators in individual member economies, have turned lower over recent months fuelling fears of a slowdown in the single customs union.

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PMI Data Declining Sharply

The composite Eurozone PMI fell to 52.4 in November, down from 53.1 in October, hitting its lowest level since late 2014. Alongside this, the forward-looking components of the PMI reading also declined in November.

The manufacturing new orders index (which has every month of 2018) dropped by a further 0.7 points to 48.9, along with the services new business index which also fell 0.6 points to 53.1.

Additionally, the PMI’s employment index declined by 1.1 points to 53.6 in November, reflecting softness in employment growth over the coming quarters.  In all, the current PMI readings suggest a GDP growth of around 0.2% – 0.3% QoQ which is below the trend rate of 0.3% – 0.4%.

Eurozone Composite PMI

German Data Weaker Than Expected

Alongside weaker Eurozone data, German data has also been falling short of expectations. The German Ifo business climate indicator fell in November while the Ifo expectations index (which most closely maps GDP growth in the Ifo report) saw its third consecutive monthly decline to 98.7 from 99.7. The data indicates that German GDP growth remained below the 0.5% growth rate seen in Q2.

Draghi acknowledged recent data weakness when speaking to a European Parliament committee this week though did reaffirm that the ECB stands ready to end QE by year end, provided that incoming data confirms the bank’s medium-term inflation outlook. However, with data continuing to print weakly, the market is wary of the chance that we might see this end date pushed out.


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