Just two weeks ahead of the ECB’s next meeting and just a day ahead of the release of minutes from the last meeting, the European Commission has trimmed its outlook for euro-area growth and inflation.
To be sure, this isn’t exactly a surprise and the cuts aren’t deep, but it’s notable because it represents yet another argument in favor of a renewed easing push from the central bank as Draghi prepares to hand the reins to Christine Lagarde.
Specifically, the EC cut its 2020 growth outlook to 1.4%, from 1.5% previously, and its inflation outlook to 1.3% for this year and next from 1.4% in the spring.
Predictably, the summer report cites trade frictions and the risk that an interdependent global economy will continue to suffer from protectionism. The EC also cites rising tensions in the Mideast and, of course, the interminable Brexit drama. To wit:
Risks to the global economic outlook remain highly interconnected and are mainly negative. An extended economic confrontation between the US and China, together with the elevated uncertainty around US trade policy could prolong the current downturn in global trade and manufacturing and affect other regions and sectors. This could have negative repercussions for the global economy including through financial market disruptions. Tensions in the Middle East also raise the potential for significant oil price increases. Domestically, Brexit remains a major source of uncertainty. Finally, there are also significant risks surrounding near-term growth drivers and economic momentum in the euro area. Weakness in the manufacturing sector, if it were to endure, and depressed business confidence, could spill over to other sectors and harm labour market conditions, private consumption and ultimately growth.
The country-by-country breakdown shows the projection for Germany and Italy remaining unchanged from the spring assessment, with the former seen expanding at a meager 0.5% clip and the latter basically stagnating.
Somewhat ironically, this came on the same day as blowout industrial production prints from France and Italy.
IP surged 4% YoY in France, the fastest annual clip since 2017 and well ahead of consensus (1.6%). The MoM print was 2.1%, seven times the expected pace and the highest read since 2016. In Italy, the news was similarly upbeat. IP rose 0.9% MoM, ahead of expectations.
Of course, a smattering of positive data points are unlikely to tip the scales when it comes to convincing the ECB not to announce some kind of new stimulus package over the next three months. The readings out of France seem anomalous, especially when set against the weakest manufacturing confidence in six years.