|

Is the economy finding its balance again?

Next week, sentiment data from Eurozone purchasing managers (February 21) for February will be published. In January, sentiment brightened in both manufacturing and among service providers. In particular, the business outlook improved enormously in manufacturing, rising above the February 2022 level for the first time. This underscores the fact that, from an economic perspective, an optimistic outlook for 2023 is justified. At the country level, sentiment was already above average, especially in Italy and Spain. The ongoing inflow of funds from the EU recovery plan to these two countries is certainly a factor contributing to this positive development.

We expect a further slight increase in business sentiment in the Eurozone in February. In general, there are currently increasingly positive signs that the economy not only in Europe, but also globally, could return to a sustainable equilibrium in the current year after the turbulent year 2022. Above all, the considerable supply-side shortages resulting from supply chain problems and an energy price crisis in Europe have already been largely resolved and should therefore not pose an obstacle to growth in the current year. Thanks to the sustained improvement in the supply side situation, a further decline in inflation momentum should be possible, despite a gradually recovering economy. Above all, this is also because growth is currently low and below potential. In this environment, the economy, not only in Europe, but also globally, should succeed in returning to a sustainable equilibrium. Then, thanks to a robust and stable supply side, rising demand should no longer be able to trigger an ‘inflation shock’ similar to the one in 2022.

In addition, the global growth outlook is brightening visibly. For example, several indicators are showing signs of increasing growth momentum in China following the end of the zero-covid policy. Sentiment in industry and among service providers has already improved significantly in January. With regard to the US economy, concerns about a possible recession are also diminishing, thanks to recent strong economic data (including strong retail sales). Furthermore, the 4Q22 reporting season of US companies has provided some positive surprises (especially for technology stocks) and confidence among US Homebuilders has improved significantly in February. With China and the US being the Eurozone's most important trading partners, we believe that this is another factor supporting a positive growth outlook for the Eurozone.

Download The Full Week Ahead

Author

Erste Bank Research Team

At Erste Group we greatly value transparency. Our Investor Relations team strives to provide comprehensive information with frequent updates to ensure that the details on these pages are always current.

More from Erste Bank Research Team
Share:

Editor's Picks

160.80: Japanese Yen remains close to nearly two-year lows

USD/JPY inches lower after four days of gains, trading around 160.60 during the Asian hours. The USD/JPY pair surged to 160.80 the previous day, marking its highest level since July 2024 and significantly heightening speculation that Japanese authorities could soon intervene to support the struggling Yen.

AUD/USD eyes 0.7050 on weaker USD; 100-day SMA holds the key for bulls

The AUD/USD pair regains positive traction during the Asian session, reversing part of the previous day's slide to sub-0.7000 levels, or the weekly low. Spot prices currently trade around the 0.7040 region, up nearly 0.40% for the day, amid a broadly weaker US Dollar.

$4,300: Gold bounces amid US-Iran peace deal signing, Fed’s hawkish hold

Gold is reversing the previous slump early Wednesday, regaining $4,300 after finding fresh buyers near $4,250. The US Dollar retreats as US-Iran peace deal optimism overshadows hawkish Fed outlook. Technically, Gold needs a sustained break above the 21-day SMA near $4,390 to revive the recovery.

Ripple awaits a breakout while Stellar rally gathers pace

Ripple steadies at $1.19 below the upper boundary of its falling channel after facing rejection. Meanwhile, Stellar extends its gains, rallying over 25% so far this week. Derivatives metrics suggest a cautious outlook for XRP, while XLM's improving futures positioning suggests a bullish outlook.

A new era for the Fed
The Fed has shifted to a more hawkish stance at the first meeting chaired by Kevin Warsh. Although rates were left unchanged, there will be meaningful adjustments to how the Federal Reserve operates in the coming months and years. There are two main takeaways from today’s meeting, firstly what the Fed did, and secondly, what they are planning to do.
Why a hawkish RBA is no longer enough to lift the Australian Dollar

The Reserve Bank of Australia delivered more than what markets expected: a hawkish hold that should have supported the Aussie. But markets widely ignored it, focusing instead on slowing economic growth and proving that central bank messaging alone isn’t always enough to drive currencies.