- Our baseline assumes a mild US tariff rate increase and therefore limited impact on EZ exports and GDP.
- If the US raises tariffs on all goods apart from EU goods, GDP could rise by twice as much this year.
- A big universal tariff increase instead could see a Eurozone recession and GDP falling by 1% or so.
Melanie Debono (Senior Eurozone Economist)Eurozone
In one line: Falling back but still consistent with a supra-50 EZ composite PMI.
Melanie Debono (Senior Eurozone Economist)Eurozone
In one line: Construction supported growth in Q4.
Melanie Debono (Senior Eurozone Economist)Eurozone
- Weak capex and declining private consumption raise alarms for Mexico’s near-term economic outlook.
- Potential tariff threats and trade negotiations could complicate economic ties between US and Mexico.
- Ongoing reforms and budget deficits will hinder Mexico’s economic flexibility and growth prospects.
Melanie Debono (Senior Eurozone Economist)Eurozone
In one line: EZ goods trade was still a drag on growth in Q4.
Melanie Debono (Senior Eurozone Economist)Eurozone
In one line: Industry was a drag on EZ GDP again in Q4.
Melanie Debono (Senior Eurozone Economist)Eurozone
- EZ trade rebounded in November, thanks to a bounce-back in exports to the US…
- ...This is not a clear sign of front-loading, yet, but marks a rebound from US port closures in October.
- US firms are more focused on China at the moment, which risks limited near-term upside for EZ exports.
Melanie Debono (Senior Eurozone Economist)Eurozone
In one line: Improvement in industry in Q4 is partly why we think GDP growth rebounded.
Melanie Debono (Senior Eurozone Economist)Eurozone
- Italian industrial production data for November were decent, as we expected…
- ...We continue to think Italian GDP rose in Q4, after stagnating in Q3; our 0.3% call is above consensus.
- Growth will rise in 2025 and—barring any political upheaval—the BTP-Bund spread will narrow further.
Melanie Debono (Senior Eurozone Economist)Eurozone
- The PMIs suggest manufacturing in the Eurozone remained mired in recession at the end of 2024…
- …But we still hope US tariff front-running will lift the hard data for Q4 and Q1, in time.
- The upturn in real M1 growth continued midway through Q4; ignore this signal at your peril.
Melanie Debono (Senior Eurozone Economist)Eurozone
In one line: Consumer sentiment takes a hit as the Holidays approach.
Melanie Debono (Senior Eurozone Economist)Eurozone
In one line: Rising IESI still points to downside risks for Q4 GDP.
Melanie Debono (Senior Eurozone Economist)Eurozone
- President Lagarde said data in coming months—not weeks—will offer clarity on the ECB’s next moves.
- This lowers the chance of a 50bp rate cut in January; we think the Bank will opt for a smaller 25bp cut.
- Three conditions, though, may push the Bank to make the next cut a jumbo one.
Melanie Debono (Senior Eurozone Economist)Eurozone
In one line: Not as bad as PMIs but still in line with our view that GDP will flat-line in Q4 after the Olympics boost in Q3.
Melanie Debono (Senior Eurozone Economist)Eurozone
In one line: Politics still holding back consumer confidence.
Melanie Debono (Senior Eurozone Economist)Eurozone
ECB HAS FURTHER ROOM TO EASE POLICY...
...BUT WE ARE CLOSER TO NEUTRAL THAN MARKETS BELIEVE
Melanie Debono (Senior Eurozone Economist)Eurozone
- Political uncertainty weighed on business sentiment in France in December…
- ...Politically-driven sentiment moves don’t usually translate into hard data, but growth will still slow.
- Services trade figures in the EZ current account point to downside risk to our EZ net trade call in Q4.
Melanie Debono (Senior Eurozone Economist)Eurozone
- EZ inflation rose less than previously thought in November, to 2.2%—rather than 2.3%—from 2.0%.
- It will increase further in December, and risks to our call for a 2.5% print are to the upside.
- The headline will fall in early 2025, allowing the ECB to cut rates further, less than markets expect though.
Melanie Debono (Senior Eurozone Economist)Eurozone
