Eurozone: Growth projections for 2020 revised down - BBVA

The Research Department at BBVA, revised down growth forecast for 2020 by 0.4pp to 0.8% driven by more evident negative effects from the worsening global outlook, especially on export-led countries, and higher uncertainty on foreign demand and investment.

Key Quotes: 

“Disappointing hard data in 3Q19 so far, but slowing growth trend seems to be containing. Exports increased slightly up to August, supported by some recovery in UK sales while those to Asia decline. The deterioration of industrial output slows due to a slight improvement of durable consumer and capital goods. Slowing retail sales point to a more moderate private consumption. Confidence surveys up to September rule out any improvement in manufacturing in the short-term, as foreign orders decline, with incipient signs of lowering hiring intentions. However, spillover effects to services still remain contained.”

“Our MICA-BBVA model now projects Eurozone GDP to slow slightly further to around 0.1% QoQ in 3Q19, still consistent with our unchanged growth projection of 1.1% in 2019."

“Further monetary policy easing, along with slightly expansive fiscal policy, could help to halt the worsening of confidence, underpin spending decisions and support a weaker euro. Across countries, GDP growth has been revised significantly downward in Germany (gloomier global outlook) and Spain (historical revision shows slower-than-expected domestic demand). More gradual slowdown is expected in France due to lower exposure to global headwinds and fiscal support, while Italy’s GDP remains virtually stagnant over the forecast horizon.”

“We revised slightly downward expectations for both headline inflation (1.2% in 2019 and 1.1% in 2020) and the core rate (1.1% in 2019 and 1.2% in 2020), driven by a more moderate domestic demand and a more gradual improvement in the labour market, along with a limited pass-through from inputs to consumer prices.”