Eurozone Leading Indicator Watch
This post is an excerpt from the Eurozone section of our September 6, 2024 G3 Leading Indicator Watch report to VP clients. The full length, original report can be viewed here. To gain access to more of our research, contact us here.
Eurozone growth: cyclical outlook rolling over, Germany lagging again
Our primary Eurozone growth LEI is still trending higher, but corroborating data we track is starting to roll over. Germany remains a weak outlier, with a growth LEI point estimate of -1.7% vs the Eurozone country median of +0.2%.
Key inputs to our primary Eurozone growth LEI, such as Swedish new orders to inventories and ZEW economic expectations (which measure financial market expectations), have begun to roll over.
Sentix expectations, which measure sentiment across the whole Eurozone, have flipped negative and suggest downward pressure on GDP growth over the next quarter.
The growth outlook in Germany remains a challenge, with GDP broadly flat since 2022. After brief signs of recovery in 2Q this year, IFO future business expectations less the current assessment are starting to roll over.
While growth data appears to be slowing, the labor market remains a bright spot, with Euro Area unemployment falling to an all-time low in July.
Eurozone inflation: services inflation risks still falling
Our Eurozone inflation LEI ticked higher last month, but the point estimate remains at a modest 2.3%, which should not stand in the way of more cuts from the ECB.
The critical Eurozone services price survey ticked down again, confirming that services inflation pressures are fading, which is key for the benign inflation outlook.
Inflation breadth continues to improve, with the percent of CPI components rising > 0.2% MoM now down to <40%.
The ECB meets next week, with a 25bp cut essentially a certainty. Our base case is the ECB will likely follow a 25bp cut per quarter pace for now.
This is corroborated by our ECB policy regime model, which remains firmly in an easing regime.
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