Uncertainty for the growth outlook remains high

Next week (November 23), the first flash estimate of Eurozone PMI data for November will be published. In October, manufacturing sentiment in particular deteriorated significantly, suggesting a decline in manufacturing activity in the current fourth quarter. By contrast, sentiment among service companies cooled only slightly. However, the index also suggests a slight decline in activity among service providers in 4Q.

For November, we expect a further slight weakening of business sentiment in the Eurozone. A stabilization of European gas prices, at a low level compared to the summer months, is currently a welcome signal, especially for industry. Overall, however, the economic environment remains highly uncertain. The EU’s monthly indicator for economic uncertainty rose slightly again in October and is gradually approaching the highs recorded at the outbreak of the Covid-pandemic in March 2020. Companies are therefore currently acting with corresponding caution and restraint in their personnel planning and investments.

At least the capital market gave positive signals from an economic perspective last week. For the first time in a long time, inflation data in the US was significantly lower than expected by the market, which supported risky asset classes, especially equities. In addition, a meeting between China’s President Xi and US President Biden was unexpectedly amicable, given previous geopolitical tensions. This, combined with the announcement of measures to support the real estate market in China (focus on improving the liquidity situation of real estate developers), boosted Chinese equities in particular. As China and the US are the Eurozone’s most important trading partners, sustained improvement in the economic situation in China would have a positive impact on the Eurozone economy through rising export growth.

We currently forecast a slight decline in GDP in 4Q by 0.2% q/q, after the Eurozone was able to grow surprisingly strongly by 0.2% q/q in 3Q. The economy should stabilize in the first half of 2023. Assuming that inflation should steadily lose momentum in the coming months, we expect Eurozone GDP to grow slightly from 2H23 onwards. Consumers in particular should benefit from the declining inflation momentum. For 2023 as a whole, we therefore expect slight growth of 0.3%, followed by a slight acceleration in growth to 0.7% in 2024.

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