Eurozone: Market sentiment toward the economy has improved, but it remains weak – Wells Fargo

Although the Eurozone economy has picked up in recent weeks, there are still signs that growth remains weak, mentioned analysts at Wells Fargo. In their view, the economy needs to show more concrete signs of stabilization before they can call the “all clear” on recession risks. 

Key Quotes: 

“Market sentiment toward the Eurozone economy has slowly started to turn more positive, or less negative, in recent weeks. Eurozone GDP rose 0.2% quarter-over-quarter in Q3, more than expected, and Germany unexpectedly avoided a technical recession, while industrial output posted a surprise gain in September. However, this morning’s PMI data for November are a reminder that the Eurozone economy remains extremely weak.”

“Slicing the data a different way, foreign demand for Eurozone manufactures has also steadied in recent months, a sign that stabilization in global growth more broadly may be starting to feed through to the Eurozone economy.”

“While the Eurozone economy is showing signs of bottoming and seems likely to avoid recession, it is also unlikely to stage a quick recovery in our view. Instead, we think Eurozone economic growth will remain sluggish for the foreseeable future.”

“The fact that the government has been so hesitant is both telling and concerning, and we think it might take an outright recession with a meaningful rise in unemployment for Germany’s government to sanction any sort of large-scale fiscal stimulus.”

“Given the overall softness in the Eurozone economy, we expect the European Central Bank (ECB) to cut rates an additional 10 bps to -0.60% at its December policy meeting.”

“We forecast Eurozone GDP growth of just 1.1% in 2019 and 1.0% in 2020.”