This article will be periodically updated - CH Europe's major economies are slowing down. In Germany the economy is loosi...

In Detail: Deceleration In Europe?

This article will be periodically updated - CH

Europe's major economies are slowing down.

In Germany the economy is loosing steam and this is apparent in Q1 numbers. Indicators are showing that - according to data and reporting from Focus Economics, key G7 indicators are pointing to a slowdown.

France: Preliminary measurements point to a slowdown in private consumption and a deceleration in investing but their outlook remains stable. A roster of events support this outlook including low unemployment, a strong euro and fiscal monetary conditions. Meanwhile in the real sector, business sentiment dropped (INSEE Index).

Over the weekend Italy president said no to appointing a Euro-skeptic FinMin. I reckoned this a positive, but the narrative has shifted..."this emboldens the two populist parties" to perhaps form a new populist front before the next elections.

While Italy remains in certain shambles and the political system upside down, a subsequent government has been formed but there is no true relief. Economic data is showing slow numbers from the first quarter and the risk of another political disaster still looms over Italy. In essence the political situation is completely unsettled

While Italy remains without a new government, it would be foolish to believe that a country where anti-system parties won 55% of the popular vote will continue to behave as if nothing had happened. But political upheavals sometime provide a unique opportunity for addressing seemingly intractable problems. - JEAN PISANI-FERRY

On one end, Spain is inching to normalcy, or what can be called normalcy. The minority government finally seems to have enough votes to see a bill through...that was last week. Spain is now back in decent. Mounting fears about political instability in Italy and Spain sent tremors through the eurozone’s two largest peripheral debt markets on Friday with investors dumping the sovereign bonds of both countries and sending European bank shares sharply lower. FT Link 

June 6th: IHS Market: Eurozone’s outlook has darkened dramatically. Italy’s turbulent political environment took its toll on businesses last month, as worries over the underlying trend in activity growth bubbled up despite a pick-up in growth in the country’s services sector that bucked a slowdown in Germany and France. The purchasing managers’ index of activity in Italy’s services sector picked up to 53.1 in May, from 52.6 in April. That compared to a fall from 57.4 to 54.3 in France and from 53 to 52.1 in Germany — a 20-month low.

June 4th: (FT) "The best argument for Italy to remain in the euro is to hope that the eurozone will eventually be reformed. If we know for certain that is not going to happen, the argument shifts."

June 1: Prime Minister Mariano Rajoy of Spain lost a no-confidence vote over a corruption scandal, turning up the political uncertainty in Southern Europe. He will be replaced by Pedro Sanchez.

May 30, 2018: From FocusEconomics: Outlook stable. The Eurozone economy lost steam in the first quarter of 2018, starting the year off on a subdued note following a stellar 2017. Growth slid to the lowest rate since Q3 2016, likely weighed down by a strong euro and weaker sentiment as well as several one-off factors such as the early timing of Easter. Available data for the second quarter suggests that growth remained at a slower cruising speed: Economic sentiment rested at March’s six-month low in April, and the composite PMI fell to an 18-month low in May. In the political arena, recent developments have also not been so sunny. In Italy, anti-establishment parties, the League and the Five Star Movement, abandoned plans to form a government on 27 May, after the Italian president blocked the nomination of a Eurosceptic finance minister, increasing the chance of early elections. Political uncertainty has also risen rapidly in Spain, and the government will reportedly face a no confidence vote in the coming days on the heels of a large corruption scandal.  FocusEconomics panelists held their view of the Eurozone economy unchanged this month and see GDP growing 2.3% in 2018. A solid labor market and robust investment should support healthy, albeit slower, growth this year. Political risks, however, continue to cloud the economy’s outlook, while slowing exports will take some wind out of the recovery. In 2019, the economy is seen expanding 1.9%. Harmonized inflation eased from 1.3% in March to 1.2% in April. Despite an ultra-accommodative stance by the ECB, price pressures remain soft and well below the Bank’s target of close to 2.0%. Our panel sees inflation averaging 1.5% in 2018, unchanged from last month’s forecast, and 1.6% in 2019. At its latest monetary policy meeting on 26 April, the ECB left its ultraaccommodative stance unchanged in the face of subdued price pressures, holding the refinancing rate at 0.00%. The next meeting is set for 14 June. All of the analysts surveyed by FocusEconomics expect the ECB to keep the refinancing rate unchanged this year amid low inflation. The Consensus Forecast is that the rate will end 2018 at 0.00% and 2019 at 0.30%. The euro lost ground against the U.S. dollar in May, falling to the lowest values seen so far in 2018. On 25 May, the euro bought 1.17 USD, a weakening of 4.3% from the same day last month. Downbeat economic data, political uncertainty and rising interest rates in the U.S. have all weighed on the euro’s value. Our panel sees the currency ending 2018 at 1.24 USD per EUR and 2019 at 1.28 USD per EUR.

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