Eurozone: Economic outlook to be reviewed - Commerzbank

Christoph Weil, Research Analyst at Commerzbank, suggests that in the euro zone, the outlook of an economy that continues to grow at an only moderate pace in the winter half-year will be reviewed this week.

Key Quotes

“Important sentiment indicators, such as the purchasing managers’ index (PMI) for the manufacturing sector in the euro zone or the Ifo business climate in Germany, have signalled a somewhat higher growth rate for the final quarter of 2016.”

“In October, the PMI for the manufacturing sector in the euro zone and the Ifo business climate in Germany moved above the narrow ranges seen since the start of 2015. This argues for somewhat stronger economic growth in the final quarter. We have therefore raised our forecast for Germany, as both sentiment and manufacturing orders suggest that the weak Q3 growth rate of only 0.2% was an outlier. For Q4, we now expect a growth rate of 0.5%.”

“For the euro zone as a whole, we are still hesitant to raise our Q4 growth forecast of 0.3%. The most important factor advising caution is sentiment in the service sector, which has tended to worsen recently. In the past, the services PMI was a better indicator of real GDP growth than its manufacturing counterpart. What is more, we think the rise of the manufacturing PMI in October partially reflects relief that the collapse of growth, which some had forecast after the Brexit vote, had not occurred. We assume that the manufacturing PMI will decline slightly from 53.5 to 53.0 in November (consensus: 53.2%). In contrast, the services PMI should rise from 52.8 to 53.5 (consensus: 52.8%).”