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Eurozone Slowdown: Weak October Data Shows Stagnation

October 28, 2019 3:40 pm
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Eurozone Slowdown: Weak October Data Shows Stagnation

Germany released weak economic data last week that showed a fall in employment that is mainly the result of job losses in the manufacturing sector.

Brexit jitters also continued to weigh on markets as politicians continue to negotiate the U.K’s departure from the European Union. 

Economist: Eurozone Economy 'Likely To Remain Anemic' 

Jessica Hinds, Europe economist at Capital Economics, said her outlook for the continent remains bleak for the fourth quarter of 2019. 

The economic weakness in the eurozone has been concentrated in the manufacturing sector — particularly in autos — but services have not been immune, and the details of the October surveys suggest the outlook for the sector is darkening further, she said. 

“The incoming new business index of the eurozone’s services PMI fell to its lowest level in almost five years and is consistent with private sector services output growth slowing sharply over the second half of 2019,” Hinds said in a research note. 

The labor market recovery is stalling, and this will weigh on services activity, the economist said. 

"The employment component of the Composite PMI fell to its lowest level in almost five years in October, while the EC’s consumer confidence index dropped to a 10-month low. The deterioration in the outlook for services adds support to our view that economic growth in the eurozone is likely to remain anemic until well into next year. We forecast annual GDP growth of just 0.5% in 2020."

End Of Draghi Era

European Central Bank President Mario Draghi held his last press conference Thursday as he prepares to leave the position Oct. 31 after eight tumultuous years.

European leaders have nominated former International Monetary Fund Managing Director Christine Lagarde as the ECB's next president.

The run of weak data was highlighted by Draghi in his final press conference on Thursday as justification for September’s stimulus package, said Capital Economics' Hinds. 

"But with our forecasts for growth and inflation much more pessimistic than the ECB, we think that his successor Christine Lagarde will need to unite the Governing Council and will implement another 30bp of deposit rate cuts and an extra [10 billion euros] n of corporate bond purchases a month from mid-2020."

The economist expects GDP data to show that the eurozone economy as a whole stagnated in the third quarter.

Related Links:

As Draghi Exits ECB, More Signs Of Struggle In German Economy

ECB Restarts Quantitative Easing, Cuts Deposit Rate By 10 Basis Points

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