Saturday , May 15 2021

Analysts are forecasting "worrying times" for the euro area

The corresponding barometer in the Munich Institute fell sharply from 19.6 to 6.6 points, according to the message Monday, the lowest level since mid 2016. The experts have revised their assessment of the current situation future expectations.

Since 1989, the Ifo Institute has questioned experts from different countries about the economy's development, the results are based on the opinions of 370 experts. Ifo President Clemens Fuest says he expects "turbulent times" for the euro area economy.

In Italy and Spain, the situation and prospects have deteriorated most. Outlook for Italy is due to budget problems, with specialists fearing a sharp increase in debt costs. In Spain, it is the first possible candidate to spread infection. Expectations have become more pessimistic compared with the previous quarter.

In Germany and France, expectations remain virtually unchanged, but the current situation is highly appreciated. On the contrary, the situation of the Dutch economy seems to have improved.

Expert pessimism fits into the fact that the IFO Institute in the context of the global trade war has redefined its export forecast for the euro area. At the same time, experts expect the short and long-term interest rates to rise over the next six months, and the US dollar continues to appreciate. The forecast for this year's inflation level is slightly increasing from 1.7 to 1.8 percent.

The most affected by a contraction of exports is Germany. In fact, the economy's performance fell in the summer, among falling manufacturing in the automotive industry. In addition, economic problems in major emerging markets, where automakers sell their production, have helped to shrink exports.

The unresolved issues in Brexit and the budget gap in the EU leave little room for optimism. Deutsche Bank also reduces its German growth forecast for 2019 from 1.7% to only 1.3%.

For the first time since the end of 2014, companies have also seen a decline in new orders.

The euro area composite purchasing managers (PMIs), which measure industry and service activities, dropped 53.1 percent in October from 54.1 percentage points the previous month, according to an estimate from London-based Markit. This is the lowest level since September 2016, but it is below analysts' estimates, which is expected to decline to 52.7 points.

An PMI indicator of more than 50 points shows an expansion of the economy, and below 50 points, the indicator shows a contraction of the economy.

"Economic progress looks pretty solid," said James Nixon from Oxford Economics. In turn, Jack Allen, capital economy, says that "October economic activity data in the euro area indicate that the region's major economies will move slightly better in the fourth quarter of 2018 in the last three months."

In the third quarter, the euro area economy noted an increase of 1.7% year on year, a significant slowdown in the previous quarters and the ECB's analysis indicates that a further decline would give growth in the euro area economy under potential growth, which inflationary pressure could be reduced.

Another worrying signal is the rise in industrial producer prices in the euro area, above expectations in September, mainly due to higher energy prices, according to data released Tuesday by Eurostat.

In September 2018, industrial producer prices in the euro area rose by 0.5% compared with August and by 4.5% compared with September last year. Analysts investigated by Reuters cited an increase of 0.4% compared to the previous month and annual growth of 4.2%. Eurostat also revised the figures for August 2018 when industrial production prices in the euro area reported an advance of 0.4% compared with the previous month and 4.3% compared with the first estimates of an increase of 0.3% and 4.2%, respectively.

The sharp rise in industrial producer prices in September was mainly due to the advance in energy prices, 1.6% compared to the previous month and 12.7% compared with the previous year. Excluding volatile energy prices, industrial output prices in the euro area increased by 0.1% in September compared to the previous month and by 1.5% compared with the previous year.

In the case of the European Union, industrial output prices rose by 0.6% in September compared with the previous month and by 4.9% compared with September last year. In Romania, industrial output prices rose by 0.5% in September compared with the previous month after an increase of 1% in August and by 6.1% compared with September last year, after a 5.9% advance in August.

Industrial production prices signal the rise of inflationary pressures, because if they are not absorbed by traders and intermediaries, producer prices tend to be transmitted to consumers, giving inflation the European Central Bank wants to hold below 2% of the environment.

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