6 May 2016
Euro area business cycle shows signs of Stabilisation - Nomura
Research Team at Nomura, notes that the euro area business cycle remained in Slowdown in April for the fourth consecutive month but moved closer to Expansion.
Key Quotes
“Momentum was only marginally negative on a smoothed basis, while it turned positive again on a monthly standalone basis in April for the first time since December.
With some tentative signs of stabilisation, our leading indicator indicates a close to 50% probability of the business cycle returning to Expansion in May, suggesting a return to Expansion as early as May cannot be ruled out. The recent slowdown has been more protracted compared with last summer’s bout of global growth concerns (when the cycle was in Slowdown for just one month), with similarities to H2 2014 in terms of the duration of the Slowdown (albeit at stronger implied growth rates this year).
Momentum loss in foreign demand and hiring intentions slowed in April. However, consumer sector momentum turned negative for the first time since August, resulting in activity in all three areas now slowing but at above-trend rates. Price expectations accelerated further in April reflecting the recent increase in commodity prices.
Against the backdrop of stronger euro area Q1 GDP growth (c.f. preliminary flash Q1 GDP of 0.6% q-o-q), signs of some stabilisation in the business cycle and slightly firmer short-term inflation outlook (compared with the March ECB staff projections) on account of the recovery in oil prices, we do not expect the ECB to rush into any further easing. However, with overall risks remaining tilted to the downside, our baseline remains that the ECB will have to do more later this year.
Growth ranking: The country ranking was little changed, with Cyprus experiencing the fastest implied pace of growth in the euro area. Finland and Greece continued to experience the weakest implied growth rates in the region. Momentum ranking: 10 out of 14 countries experienced faster momentum (up from 5 in March) as the number of countries experiencing negative momentum declined to 9 (from 11 in March).”
Key Quotes
“Momentum was only marginally negative on a smoothed basis, while it turned positive again on a monthly standalone basis in April for the first time since December.
With some tentative signs of stabilisation, our leading indicator indicates a close to 50% probability of the business cycle returning to Expansion in May, suggesting a return to Expansion as early as May cannot be ruled out. The recent slowdown has been more protracted compared with last summer’s bout of global growth concerns (when the cycle was in Slowdown for just one month), with similarities to H2 2014 in terms of the duration of the Slowdown (albeit at stronger implied growth rates this year).
Momentum loss in foreign demand and hiring intentions slowed in April. However, consumer sector momentum turned negative for the first time since August, resulting in activity in all three areas now slowing but at above-trend rates. Price expectations accelerated further in April reflecting the recent increase in commodity prices.
Against the backdrop of stronger euro area Q1 GDP growth (c.f. preliminary flash Q1 GDP of 0.6% q-o-q), signs of some stabilisation in the business cycle and slightly firmer short-term inflation outlook (compared with the March ECB staff projections) on account of the recovery in oil prices, we do not expect the ECB to rush into any further easing. However, with overall risks remaining tilted to the downside, our baseline remains that the ECB will have to do more later this year.
Growth ranking: The country ranking was little changed, with Cyprus experiencing the fastest implied pace of growth in the euro area. Finland and Greece continued to experience the weakest implied growth rates in the region. Momentum ranking: 10 out of 14 countries experienced faster momentum (up from 5 in March) as the number of countries experiencing negative momentum declined to 9 (from 11 in March).”