Eurozone Economy, Picking Up but Growth Signs Remain Weak

LONDON, U.K. – Although the Eurozone economy suggested gain in the recent weeks, its growth signs still remain week and needs more concrete signs of stabilization before it’s clear from any recession risks.

In recent weeks, the market sentiment over the Eurozone economy has started to become more positive. For the quarter over quarter GDP, Eurozone has increased by a modest 0.2% for the third quarter, which is more than what was expected.

However, based on the PMI data for November, it suggests that the Eurozone economy is simply scraping by, remaining weak despite the recent turn of sentiments. The composite PMI was down to 50.3 as the services PMI has also dipped towards 51.5. On the other hand, the manufacturing PMI got a better deal as it goes up towards 46.6.

The PMI numbers suggest that the GDP for Eurozone for the fourth quarter would remain modest at best, bordering near barely positive.

The key factors affecting the slow growth in the Eurozone economy still remain the issues in the resilience of the services sector and the weakness in the manufacturing sector. Fortunately, there are tentative signals that there might be some stabilization to the manufacturing sector, and recovery might be expected.

Meanwhile, the numbers around the service sector have remained to show some resilience. The wage growth has stayed moderately solid, with a 2% YoY gain from its usual 1% YoY increase in the past few years.

Unfortunately, despite the recent gains in the Eurozone economy and while it seems less likely to fall towards recession, a quick recovery for the economy is not likely to happen anytime soon. The Eurozone economy is expected to stay sluggish or simply modestly increasing in the foreseeable future.

The continued softness regarding the Eurozone economy is due to certain factors such as the easing over in the domestic policy environment throughout the year but having no large impact on the domestic demand. Further, the bank lending rates and market interest rates went down in 2019.

With the largely absent fiscal policy support, the easing measures in the past from the ECB have also made a very little positive impact on the financial and monetary conditions. But, further ease in the policy by ECB is expected for December.

According to Philip Lane, ECB Chief Economist, the central bank is currently far from the lower bound, and the comments by the newly appointed ECB president, Christine Lagarde, regarding fiscal policy suggest that she supports further easing on the policy.