SMM News: France, Germany and the euro zone released a series of economic data on Tuesday, depicting the euro zone's bleak economic growth prospects, supporting doves among ECB policymakers who advocate further interest rate cuts and bond purchases.
France's economic growth unexpectedly slowed in the second quarter as household spending weakened and German consumer confidence worsened for the third month in a row in July, a further sign that the eurozone economy as a whole is cooling.
Weak data from the euro zone's two largest economies supported ECB President Jean-Claude Draghi's assessment. Draghi believes that the outlook for economic growth is deteriorating and that the European Central Bank should come out with more monetary stimulus measures.
Preliminary data showed that Germany's CPI fell to 1.1 per cent in July from 1.5 per cent last month, a further sign of economic weakness. This is the lowest level since November 2016. It also marks the third month in a row that German inflation is well below the ECB target of close to but below 2 per cent for the eurozone as a whole.
Sebastian Wanke, an economist at the German Bank for Reconstruction and Credit, said the situation cheered consumers and savers cried. Mr Draghi will certainly not raise interest rates during his tenure.
Mr Draghi's term as president of the European Central Bank ends on October 31st, when Christine Lagarde, managing director of the International Monetary Fund, will take his place.
Loose policy should be implemented as soon as possible
Figures released by the European Commission on Tuesday showed that the eurozone economy worsened to its lowest level in more than three years in July and the economic outlook was even dimmer.
The macro Melanie Debono said Tuesday's data provided evidence that the eurozone economy would grow by just 1 per cent this year and provided a stronger case for the ECB to act as soon as possible.
Preliminary data from (INSEE), France's national statistics agency, show that the French economy grew 0.2 per cent between April and June, down from 0.3 per cent in the previous quarter.
But it also shows that the French economy is more resilient than some of its neighbours, such as Germany, is less dependent on exports and less affected by global fluctuations.
Despite a series of measures by French president Macron to stimulate purchasing power of more than 10 billion euros ($11.1 billion), household spending, the traditional engine of French economic growth, rose by just 0.2%, the lowest level in a year.
Growing concern about the economic outlook
Germany's economy is widely expected to shrink in the second quarter, and consumer confidence surveys suggest there may be no improvement in the third quarter, raising fears of a technical recession in the eurozone's largest economy.
The GfK consumer confidence index, based on a survey of about 2000 Germans, fell to 9.7 from 9.8a month ago. This is the lowest level since April 2017.
As German exporters are hit by trade disputes and the uncertainty of Brexit, household spending and construction have become important drivers of German economic growth. Record high employment, higher-than-inflationary pay increases and lower borrowing costs have boosted domestic demand.
But falling consumer confidence suggests that the recession in export-dependent German manufacturing is spreading to other parts of the economy, and employees are increasingly worried that they may soon lose their jobs.
GfK researcher Rolf Buerkl said the trade war with the United States, ongoing Brexit negotiations and the global economic slowdown are the main reasons for concerns about the recession. He added that consumers in export-driven industries, particularly those employed by the automotive industry and its suppliers, were the most affected. The index of propensity to buy in the GfK survey also worsened to its lowest level in nearly four years.
Buerkl said the main threat to consumer confidence was growing concerns about unemployment. And warned that if this trend continues, household spending could fall in the coming months.
Earlier, the ECB announced at its meeting that interest rates would remain unchanged, giving the euro a "break of 70 per cent discount". In the end, Mr Draghi's more positive judgment of the eurozone economy than expected saved the euro. However, the release of the two data on Tuesday shows that the economic situation in the eurozone does not seem optimistic, which may partly lead to faster easing measures by the ECB, when the euro will come under further pressure. Investors should keep an eye on the ECB's information and the performance of the Fed's resolutions.
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