Week Ahead/Review: Europe continues to slow down

Week in review: After better-than-expected GDP in Q3, activity indicators in Q4 suggest the economy has slowed down further. The PMI indicator fell to 51.4 in November, down from 52.1 in October, remaining above the zero-growth threshold of 50, but signalling weakening growth in the euro area. The manufacturing sector was just above the water level, at 50.4 and the services PMI fell to 51.3. The details by country show that Germany fell fast from 53.9 to 52.1. In France, the PMI edged up but remained in recessionary territory, at 48.4.

This week’s release increases the pressure on the ECB to do more. At the last meeting President Draghi announced that the ECB staff was actively working on more measures. Today, at the Frankfurt European Banking Congress, Mario Draghi reinforced the ECB determination saying we [the ECB] will do what we must to raise inflation and inflation expectations as fast as possible. Markets expect the ECB to start buying sovereign bonds, with an official announcement possibly as early as in December.

Week ahead: Important European data on inflation and confidence will be released towards the end of the week, ahead of the policy-setting meeting that takes place one week later.

  • Thursday 27 November:
    • European Sentiment Indicator (ESI), European commission: The PMI data suggests confidence may fall in November
    • Euro area money supply and credit: credit and money growth has been very weak. Markets anticipate no improvement on that front
  • Friday 28 November:
    • November Flash inflation  in Europe: this release should confirm that inflation remains very weak. Any bad surprises (markets expect a stabilisation at around 0.4%) will add to the pressure for the ECB to do more faster
    • October unemployment rate in Europe: markets expect it to remain stable at 11.5%, better than a year ago but still above its long term average, suggesting there is a lot of slack in the economy.
    • Portuguese GDP second estimate: this release may confirm GDP changed only 0.2%qoq in Q3, mainly driven by private consumption. The complete demand details will be reported.
    • Industrial Production (Portugal): October’s value will be released after a fall of 1.4%yoy in industrial production in September. IP has been recovering slowly since the second half of 2013, though with slight occasional relapses.