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Analysts at Nordea Markets notes that the deterioration in the Euro-area sentiment indicators has continued mainly in the recent months, but the gap between the manufacturing and services numbers has widened.

Key Quotes

“The manufacturing confidence data are already pointing to an outright recession, while the service sector is doing better and still indicating only a slowdown in growth.”

“Taken together, the manufacturing and service data point to only modest growth, and the weakened manufacturing outlook poses a clear downside risk to services confidence as well.”

“The negative factors hitting confidence, which were initially thought to be temporary – Brexit, the trade war, problems with German car manufacturers, French yellow-vest protests, the Chinese slowdown – have proved longer-lasting, which will also lead to more subdued economic performance.”

“We still think that the biggest hit to confidence from these factors has already been delivered, and the negative pressure will gradually abate towards the end of the year. Nevertheless, it seems clear that one should not expect more than a modest rebound in growth. As a result, we are revising down our Euro-area growth forecasts to 1.0% for this year and 1.2% in 2020 (from 1.2% and 1.4% previously).”

“We judge that the weaker growth outlook and a painfully slow rise in core inflation are not enough to persuade the ECB to raise rates during our forecast horizon, and drop the last remaining rate hike from our forecast. As a result, we do not see any rate hikes from the ECB until the end of 2020 and see increasing odds that the ECB will not be able to raise rates at all in this business cycle.”