Eurozone: Growth will remain robust but a bit more downside - Danske Bank

According to analysts from Danske Bank, monetary tightening, higher yields, lower real wage growth, uncertainty and a stronger Euro are all factors pushing production growth a notch lower in the rest of 2018. 

Key Quotes: 

“The euro area is the region where we have seen the clearest signs of weakening.”

“The economic surprise index has fallen sharply recently. PMI manufacturing has also been in decline since December 2017 driven by the new orders (and output) index. A moderation in euro area PMIs was in line with our expectations, given the very high levels reached in Q4 17.”

“We believe the recent decline in manufacturing PMI is a reflection of increasing capacity constraints impeding output and the lagged impact of the stronger EUR as well as increasing business uncertainty in light of US-China trade conflicts adversely affecting especially the new (export) orders index.”

“Although we look for further moderation in PMI manufacturing in the next 3-6 months, we expect the magnitude of declines to decrease, with PMIs stabilising around the 54.5-55.0 level, as the negative impact of the euro appreciation is waning and trade conflict concerns abate.”

“The manufacturing cycle will continue to benefit from continued loose financial conditions in Europe.”

“Despite PMIs tapering off, we do not see reason to be concerned about the near-term growth outlook in the eurozone, which will remain robust in our view. Also, actual GDP growth was never as high as predicted by PMIs in Q4 17 and hence we do not expect a similarly sharp growth deceleration ahead as PMI manufacturing has exhibited.”