2020 likely to be another disappointing year for European economy, says Capital Economics

The latest set of economic data suggest that the euro-zone economy might have avoided a further slowdown in Q4 last year, adding to the evidence that growth is “bottoming out”. However, the economy seems to have remained sluggish and a recovery is not expected at least in the first half of this year, according to the latest research report from Capital Economics.

The latest official activity data show no sign of improvement. In fact, industrial production and retail sales both declined in month-on-month terms in September and again in October. And most of the timelier surveys are pretty downbeat too.

Indeed, the final manufacturing PMIs, published this week, brought more bad news. The output index fell from 47.4 in November to 46.1 in December, more than reversing the previous month’s rise. That left it pointing to industrial output falling by about 3 percent y/y.

The forward-looking components of the manufacturing PMI survey were also weak. The new orders index was broadly unchanged and remained in contraction territory. And although the future output index was much higher at 55.9, that was still well below its long-run average of 60.3.

The ZEW measure of financial experts’ expectations actually rose sharply towards the end of last year. In part, that’s likely to reflect the rise in equity prices, only a tiny portion of which was reversed in today’s sell-off, the report added.

"Looking ahead, even if economic growth does not slow any further this year, it is unlikely to pick up in the next few quarters as others assume. The ECB forecasts growth to rise to 0.3 percent in Q1. And the consensus forecast shows that most analysts expect faster growth to come only a little later, in Q2. By contrast, we think that it will take until the end of the year for growth in the euro-zone to improve," Capital Economics further commented in the report.