Upcoming German GDP, PMI & More

We’re in for a busy close of the week! There are several key events likely to rile up the euro during the early European session.

For now, we’ll focus on the news coming out of Germany, where we are expecting to get confirmation that they just managed to technically avoid a recession.

Then, we delve deeper into the country’s industrial performance with the release of preliminary PMI data. We’re expecting this to have improved a bit, finally!

Policy Might Be the Highlight of the Day

The other major event which could cause some fluctuation in the euro is the first policy speech by Christine Lagarde since she took over as head of the ECB.

Analysts are going to be really interested in understanding what sort of changes she will be bringing to the bank. They will also be keen for her to address some of the rumors that have been circulating in the last three weeks. 

Lately, the chance of further stimulus from the ECB has diminished. Most analysts are dropping their projections of a rate cut in the next year to just 40%.

With Lagarde speaking in front of a banking conference, we’re expecting at least some commentary on policy. And, as the speech goes on, it could influence the markets. There is no scheduled Q&A session afterwards, however.

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Germany’s Economy

Last week we had the first look at Germany’s Q3 GDP numbers. These showed that they managed to avoid a technical recession by the bare minimum, growing at 0.1% in the quarter.

That comes out to just 1,0% growth on an annual basis. Expectations are for the final release to confirm the preliminary numbers, with the markets likely to react only if there is a significant change. 

Some analysts have pointed out that Germany’s growth rate measured in euros is below the inflation rate for the period. In order to say that the largest economy in Europe avoided a recession, we have to rely heavily on calling it technical. The problem is, projections aren’t showing significant improvement for the current quarter.

Germany’s Industrial Sector

Speaking of trying to get the economy going, an hour and a half after the GDP figures, we have preliminary PMI readings.

Expectations are for manufacturing PMI for November to improve just slightly to 42.3 from 42.1 in October (and within the margin of error of the survey).

We can expect services to do the best, improving to 53.2 from 51.6 prior. But, projections indicate that the Composite PMI will slip into further contraction at 48.3 from 48.9 prior.

The expectations show the divergence between the domestic and international portions of the economy. Services generally rely on the domestic economy and have remained solidly in expansion, while industrial outlook has continued to fall deeper into contraction.

The Outlook Isn’t Improving Much

Of the major European economies, Germany is the one with the worst outlook among its industrial sector. In fact, it’s actually dragging down the measure for the entire eurozone.

The international trade situation with uncertainties revolving around tariffs have been blamed for the decline. But, German industrial groups say it has more to do with the regulatory environment.

During their quarterly reports, German manufacturers largely continued to have a subdued outlook for the rest of the year. Those who gave guidance for next year expected the environment to remain challenging.

While the diminishing chances of further easing from the ECB might support the euro in the near term, without a substantial turn around in German industrial production, there is a limited fundamental reason to expect long-term euro strength. 

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