As widely expected, the latest German data released this morning confirms the risk of Germany’s manufacturing recession. August factory orders are still deeply in contraction, falling 6.7% YoY, which marks the 15th consecutive month of YoY decline.
The euro area growth momentum has sharply weakened since the beginning of 2018 on the back of the downturn in global trade and China’s lower imports.
The EuroCoin growth indicator, which tracks the evolution of economic activity in the euro area in real-time free from measurement errors and seasonal fluctuations, is supporting the case for further slowdown. It is currently pointing down at 0.16, close to its lowest points since 2014.
Our proprietary leading indicator credit impulse is also in the lower bound, standing at 0.6% YoY in Q2 this year.
A noticeable bright spot is the recent pick up in narrow money M1 at 8.5% YoY in August, the highest level since Autumn 2017. However, we are skeptical that it will be able to revive the business cycle. It has largely been interpreted by market participants as a bullish sign for growth. But, as a word of caution, we should remember that a similar pattern appeared in 2015 at the start of the ECB QE and it did not translate into a pick-up in economic activity.
We fear the same will happen again as the relaunch of QE without coordinated fiscal push at the EU level is unlikely to shore up eurozone growth.