Surveys Point to stabilizing growth – though Italy is weakening

Latest PMI surveys point to stabilizing, solid growth in the Eurozone, though the fall in Italian sentiment stands out.

While for the Eurozone as a whole, August PMI readings point to 2.2% real GDP growth – a clear improvement compared to H1 2018 numbers – the Italian PMI fell 1.3 points to a total of 51.7 only, below the average seen during 2014-16, a time when Italian real GDP grew a meagre 0.8%.

This suggests that the growth problem in Italy remains acute. We are not overly worried by the weakness in Eurozone retail sales. Though the 0.2% decline in July points to a weak start into third quarter domestic consumption spending, consumer confidence remains high, and strong new car registrations are likely to bolster consumer spending.

This signals a solid pace of aggregate consumer spending. As to the upcoming ECB meeting this Thursday, we do not expect major changes, given the earlier announcement of ending the QE purchase program later this year while keeping policy rates unchanged until mid-2019. We expect only minor changes in the ECB staff projections.

Gero Jung – Chief Economist – Mirabaud AM