Eurozone growth to slow as second wave concerns intensify

Bert Colijn ING Economic and Financial Analysis

Economic sentiment in the Eurozone improved in September, but at a slower pace. With new local restrictive measures being taken to contain second waves of the virus, downside risks to the outlook are becoming more significant for the fourth quarter.

The Economic sentiment indicator for the eurozone increased from 86.8 to 90.2 in September, indicating that the economic recovery continues albeit at a slower pace.

This paints a slightly better picture than the PMI - which indicated stagnation in September – but given that the PMIs literal interpretation of the index has been slightly off for extraordinary peak Covid-19 cases months, we think the gradual increase in the ESI and German IFO survey are more accurate in indicating the current direction of the eurozone economy.

Especially interesting is the stark difference between the sentiment indicator and PMI for the service sector. The PMI showed a decline in services, while the improvement in economic sentiment was mainly due to a large improvement in the service sector. Businesses became more upbeat about activity in the last few months, which confirms the expected strong rebound in GDP for 3Q. The expectations for the months ahead are still weak though, as they show a slight decline in September, which could reflect second wave concerns.

Surveys show a similar picture regarding manufacturing, as the ESI also confirms a continued recovery for the sector. Order books continue to recover and stocks of finished products are declining, indicating that the months ahead are likely to see continued growth for the sector.

The first few months after the eurozone economy reopened after strict lockdowns showed a fast rebound in activity. Today’s ESI indicates that the eurozone economy is already showing signs of rebound fatigue in September and second wave worries add to expectations of further slowing of economic growth.

More measures are being taken to tackle the virus, which will not necessarily have a strong impact on the 3Q growth figures, but will be very relevant for GDP growth in 4Q.

Read the original analysis: Eurozone growth to slow as second wave concerns intensify

Author

Bert Colijn

ING Economic and Financial Analysis

Bert Colijn is a Senior Eurozone Economist at ING. He joined the firm in July 2015 and covers the global economy with a specific focus on the Eurozone.

EUR/USD holds firm near 1.1850 amid USD weakness

EUR/USD remains strongly bid around 1.1850 in European trading on Monday. The USD/JPY slide-led broad US Dollar weakness helps the pair build on Friday's recovery ahead of the Eurozone Sentix Investor Confidence data for February.

GBP/USD holds medium-term bullish bias above 1.3600

The GBP/USD pair trades on a softer note around 1.3605 during the early European session on Monday. Growing expectation of the Bank of England’s interest-rate cut weighs on the Pound Sterling against the Greenback.

Gold remains supported by China's buying and USD weakness as traders eye US data

Gold struggles to capitalize on its intraday move up and remains below the $5,100 mark heading into the European session amid mixed cues. Data released over the weekend showed that the People's Bank of China extended its buying spree for a 15th month in January. Moreover, dovish US Fed expectations and concerns about the central bank's independence drag the US Dollar lower for the second straight day, providing an additional boost to the non-yielding yellow metal.

Cardano steadies as whale selling caps recovery

Cardano (ADA) steadies at $0.27 at the time of writing on Monday after slipping more than 5% in the previous week. On-chain data indicate a bearish trend, with certain whales offloading ADA. However, the technical outlook suggests bearish momentum is weakening, raising the possibility of a short-term relief rebound if buying interest picks up.

Japanese PM Takaichi nabs unprecedented victory – US data eyed this week

I do not think I would be exaggerating to say that Japanese Prime Minister Sanae Takaichi’s snap general election gamble paid off over the weekend – and then some. This secured the Liberal Democratic Party (LDP) an unprecedented mandate just three months into her tenure.

Bitcoin, Ethereum and Ripple consolidate after massive sell-off

Bitcoin, Ethereum, and Ripple prices consolidated on Monday after correcting by nearly 9%, 8%, and 10% in the previous week, respectively. BTC is hovering around $70,000, while ETH and XRP are facing rejection at key levels. Traders should be cautious: despite recent stabilization, upside recovery for these top three cryptocurrencies is capped as the broader trend remains bearish.