Slowdown worries continue to plague the Eurozone
Italy unlikely to have recovered from a technical recession
The Eurozone’s economy got off to a sluggish start in 2019. Latest forward-looking indicators showed as some of the Eurozone’s major economies have seen stagnating growth. Italy, Europe’s third-largest economy showed little signs of recovering from a recession in the fourth quarter of the year.
The downbeat data comes as the uncertainty due to Brexit and the weakening global outlook weighed on the economic bloc.
Eurozone’s economy was already under pressure as data in late 2018 showed a marked slowdown in the pace of economic expansion. This trend is expected to continue going by the latest reports for January. The continued declines come as decelerating growth from China could spell a slower pace of growth for the global economy.
This is likely to become a major concern for not just investors but also policymakers.
The British Prime Minister, Theresa May is set to renegotiate the UK’s Brexit deal with Brussels. The UK’s parliament rejected previous attempts to pass the Brexit deal.
The main sticking point has been the Irish border backstop arrangement which the UK is trying to avoid with Ireland. EU leaders have however maintained that the Brexit agreement was not up for negotiation.
Eurozone investor confidence takes a hit for the fourth consecutive month
Latest reports showed that investor confidence in the Eurozone fell to a four year low as confidence fell for the fourth straight month. Data from the Frankfurt-based Sentix showed that investor confidence fell to -3.7 in February, down from -1.7 in January.
The current conditions index fell to 10.8 from 18 which was the weakest reading since December 2016.
Meanwhile, Germany’s investor confidence also posted similar trends as the index fell for the fourth consecutive month.
“A major reason for this development is likely to lie more and more in the approaching Brexit. The economy now has to deal with the contingency plans in view of the unresolved political situation,” a spokesperson for Sentix said.
Eurozone retail sales fall the most since 2011
Business activity surveys released last week showed that the output in France declined alongside the Eurozone’s retail sales which marked the steepest monthly decline since the middle of 2011. Data from the European statistics agency, Eurostat showed that retail sales fell 1.6% on the month in January, down from a revised 0.8% increase the month before.
Economists were expecting to see retail sales decline 1.5% during the period.
Markit PMI surveys point to subdued pace of activity
Latest polls by IHS Markit showed that the Italian economy had contracted for a second consecutive quarter in the three months ending December. This put Italy’s economy in a technical recession, recent data showed.
IHS Markit’s survey revealed that Italian businesses found it hard to recover from the contraction. Markit’s composite PMI for Italy showed that the index fell to 48.8 in January, down from 50.0 in December. A reading below 50-level indicates a contraction in the sector.
The data underlined the fact that the Italian economy might be undergoing a sustained slowdown which could signal a sharper slowdown for the Eurozone as well.
Meanwhile, it was a similar situation for France, the Eurozone’s second-largest economy. IHS Markit’s composite PMI dropped to 48.2 in January after declining to 48.7 in December. The French composite PMI contracted during the month.
The exceptions were Germany and Spain which showed a modest pickup in the composite PMI, but the pace of increase is small.
The slowdown in the Eurozone’s economy comes amid a broad-based weakness since the middle of 2018. This was mainly on account of cooling demand for the exports sector. However, domestically as well there were signs of slowing demand in the goods and services sector.