Europe: The Week Ahead (Feb 18-22), Germany: Trouble In The Euro Area's Economic Engine

By Steven Levine, Senior Market Analyst, Interactive Brokers

The European calendar is gearing up for a busy round of economic releases in the week ahead, with a raft of reports due out of Germany, including inflation, manufacturing, and GDP.

Investors will generally be keeping a close eye on the European economic engine, as data in the country recently disappointed, stoking fears among market participants about the growth prospects of the broader Euro Area.

Monday, February 18

ZEW Economic Sentiment Index (Feb)

The week kicks off with an update on economic sentiment from German research institute ZEW, after January’s gauge of current conditions plunged by 17.7 points to 27.6 – the lowest level in four years.

However, ZEW president Achim Wambach waxed somewhat optimistic about the dismal report, noting that it was “remarkable that the ZEW Economic Sentiment for Germany has not deteriorated further given the large number of global economic risks”.

Wambach added that “financial market experts have already considerably lowered their expectations for economic growth in the past few months. New, potentially negative factors such as the rejection of the Brexit deal by the British House of Commons and the relatively weak growth in China in the last quarter of 2018 have thus already been anticipated.”

Indeed, the International Monetary Fund had cut its global growth outlook in January from its assessment in October 2018, amid risks that have tilted to the downside, including U.S.-China trade-related tariff effects, a “no-deal” withdrawal of the UK from the EU, and a greater-than-expected slowdown in China.

According to the IMF’s World Economic Outlook, growth in the Euro Area is set to moderate from 1.8% in 2018 to 1.6% in 2019 (0.3 lower than anticipated last fall) and 1.7% in 2020. The WEO stated that growth rates have been “marked down for many economies, notably Germany (due to soft private consumption, weak industrial production following the introduction of revised auto emission standards, and subdued foreign demand).”

The IMF anticipates Germany’s output at 1.3% in 2019, a reduction of 0.6 points from its October WEO.

While the ZEW Economic Sentiment Index rose by 2.5 points in January 2019, and now stands at -15.0 points, the indicator is still well below its long-term average of 22.4 points.

Wednesday. February 20

PPI (Jan)

The producer price index (PPI) for sales of German domestic, industrial products rose by 2.6% on an annual average in 2018 from the preceding year. In 2017, the index had increased by 2.7% compared with 2016, as reported by the Federal Statistical Office (Destatis).

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The author does not hold any positions in the financial instruments referenced in the materials provided.

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