Eurozone: Recession risks receding – Danske Bank

Danske Bank analysts point out that it’s a lacklustre start to Q2 for the Eurozone’s economy as in April, the manufacturing PMI remained below the recession indication level of 50 for the third consecutive month and showed only a small rebound to 47.9.

Key Quotes

“The service sector still underpins growth, although the services PMI edged down slightly to 52.5 in April. On a positive note, manufacturing new orders showed the first increase since December 2017, driven by a less pessimistic assessment of the export outlook, signalling that we might be past the trough in the manufacturing sector.”

“Overall, sentiment data continued to be mixed in April, with the German Ifo also stalling its upward trend, indicating that the economy is not yet out of the woods. This said, our Danske growth tracker has broken out of its downward trend and the risk of a euro area recession has subsided recently.”

“The more optimistic picture that hard data has painted for some months was finally confirmed by Q1 GDP growth surprising on the upside at 0.4% q/q.”

“In line with our expectations, the April inflation figures increased notably compared with March on the back of seasonal effects from the timing of Easter. Headline inflation rose to 1.7% y/y, driven by higher energy prices and core inflation, which rose to 1.2% y/y. In our view, it is likely the increase in core inflation was due to higher service prices from package tours and transport services due to the Easter effect.”

“The uptick in core inflation in combination with the strong Q1 GDP number weakens the case for further easing measures from the ECB. However, the ECB does not react to single data points and the true state of underlying inflation pressures will be revealed only in coming months.”