Eurozone: Soft economic data – RBC

Royal Bank of Canada analysts suggest that it looks like the euro area started 2019 the same way it ended 2018—with sub-trend growth of around 0.2%, but there were some signs of stability in the currency bloc’s most recent survey indicators.

Key Quotes

“The euro area composite PMI rose to a three-month high in February as an improving services sector more than offset further slowing in manufacturing. The latter has been weak in most major euro area economies, though decent industrial production figures in January at least suggest the sector has stopped contracting. Meanwhile, services PMIs in the largest economies are back in expansionary territory, including in Italy and France where political uncertainty and unrest weighed on activity late last year.”

“So while it looks like the first quarter will be another soft one, there are at least some signs that growth is starting to improve as the year progresses. Those green shoots weren’t enough to prevent the European Central Bank from taking an axe to their GDP forecast, lowering 2019 growth to 1.1% from 1.7% previously.”

“The bottom line is that the ECB is seeking to maintain highly accommodative financial conditions until there is a clear path back to their inflation target. Consistent with their guidance, our forecast now assumes gradual rate increases will be held off until 2020. The deposit rate is only seen getting back to zero by the end of next year.”