The EU’s quarterly GDP showed a print of 0.1% in January, missing expectations by 10 basis points. The contraction indicated that the eurozone’s economy grew at a weaker pace than anticipated.
In fact, growth fell to its lowest level since the first quarter of 2013.
European unemployment, on the other hand, remained steady at 7.4%, as expected. However, unemployment in many EU countries remains elevated.
On the other hand, new job growth in Europe was seen in temporary, part-time or self-employed positions.
Why the Current GDP & Employment Print?
Well, for one, the EU has managed to avoid a no-deal Brexit with the UK. However, there is still some uncertainty going forward.
The two partners need to form a smoother transitional draft in order to ease tensions. Otherwise, risk to the downside will prevail. This could have a deeper negative effect onboth the GDP and employment numbers.
In addition, since China is a larger trading partner with the EU than the UK, the trade war between the US and China has been closely monitored by European investors and businesses.
Obviously, the eleventh-hour phase I trade deal has, so far, helped pave the way to reducing fears of an escalation in the trade conflict between the US and the EU. Despite being on hold due to the COVID-19 outbreak, phase II still poses a risk to the European economy.
Even before the virus started to make headlines, there was a lot of skepticism surrounding phase II. The markets were quick to label phase I as hurried, expecting phase II to be the deal-breaker.
The effects of COVID-19
Due to the coronavirus, we can expect the travel and leisure industry to take a big hit. With fewer travelers willing to commute, the airline industry is poised to remain under pressure at least in the short-term.
Entertainment and Arts is feeling the pinch, as well as people prefer staying indoors to going outside. Perhaps the greatest example of this is that the release of the new Bond movie, “No Time to Die”, has been delayed due to the outbreak.
On the other hand, the medical industry is likely to show growth in employment along with the increase in medical supplies. The tech industry is also expected to do well.
With coronavirus spreading deeply across Europe local and small businesses will also be affected, denting the GDP further.
The slowdown in economic activities will have an impact on employment. And while the employment rate has been steady, we can expect a decline.
EUR Breathes New Life on Equities Meltdown
After staying depressed for the better part of the New Year, the euro found some temporary relief. It has been posting gains for the past 3 weeks. It found a base to 1.077 and printed almost 1.1500 so far.
Note that the robust recovery on the EURUSD is not supported by any economic data. The general consensus, however, points to USD weakening due to the Fed’s surprise cut. And it’s perhaps even owed to a temporary boost based on safe-haven inflows – i.e. money moving from the equity sector is finding EUR more attractive.
Expectation Going Forward
The revision of this quarter’s GDP is likely to be on the lower side. However, the main area of concern for investors and the ECB will be how the coronavirus is going to impact GDP during March and Q2.
Aviation, hospitality, leisure, construction, small business, and the manufacturing sectors are all likely to be affected. This could easily deliver a negative GDP print for Q1 and perhaps even trigger a recession.
Trading-wise, the euro is likely to show a muted response to the data today. The euro will offer better opportunities from a macro point of view on Thursday as the ECB will announce its interest rate decision.
Are we likely to see another central bank slashing its rates? And how much deeper can the ECB really go?