Euro Zone: Surveys suggest poor GDP growth in Q3

After zero growth in Q2 in the Eurozone, surveys deteriorated in August. The Economic Sentiment Indicator, after roughly stabilizing over the last five months, fell to its lowest level since the start of the year.

The flow of economic news further disappoints in the Eurozone. While GDP stagnated in the Eurozone and in France during the second quarter, and slightly decreased in Italy and in Germany (see Eco-Flash 14-188, Stagnation and deflation risk, 14th August), survey data suggest poor recovery in Q3.
Earlier this week, Markit released that the composite PMI index for the Eurozone fell back in August to its June level (see Eco-Flash 14-191, PMIs signal decelerating but positive growth in August, 21th August). Today, the European Commission published its Economic Sentiment indicator, based on business and consumer surveys from the whole European Union. The Economic Sentiment Indicator, after roughly stabilizing over the last five months, fell by 1.5 points in August. At 100.6, the index fell to its lowest level since the start of the year, almost back to its long term average.
The decline was widespread across sectors, with confidence deteriorating everywhere, although by a smaller extent in services and construction sectors). By countries, the largest drops were recorded in Italy (-4.1 pts) and in Germany (-1.9 pts), while the index stabilized in Spain. Such differences among the largest countries were also notable in the PMI surveys.
Manufacturing activity is probably suffering from increasing geopolitical tensions and the start of sanctions against Russia in H2, especially in the most industrialized countries. This could further depress investment expenditures. In addition, consumers demand will remain poor in most Eurozone countries as long as employment doesn’t recover. While taking into account zero growth in Q2 alone could drive us to cut our forecast by 0.3pp in 2014 in the Eurozone, incoming survey data for Q3 suggest to go further.

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