Economic data in Europe remains subdued

Back when the European Central Bank (ECB) resumed its bond-buying programme, worth €20bn a month, one question loomed large for investors and the markets at large; is the unconventional monetary policy set in stone sufficient to address current economic inefficiencies?

Perhaps not.

Albeit proving sufficient in the short-term, with Europe’s outlook brightening following a prolonged interval of sluggish economic data, the Euro area has once again disappointed, bringing back memories of the most recent wave of asset purchases, which failed to achieve its stated objective; to instil economic growth within the Euro area.

As economic data for both Europe and Germany – Europe’s largest economy, experienced another turnaround, this time round, for the worse, the uncertainty and fear of possibly being on the brink of another recession, once again, mounts, dissipating the optimistic mood with which the single currency bloc began the year.

According to economic data published last Friday, Germany's gross domestic product (GDP) unexpectedly flatlined in the fourth quarter, producing zero growth, a performance that was below analysts’ expectations and down from an upwardly revised 0.2 per cent growth in the previous quarter.

While capital investment in both machinery and equipment fell, the German economy was mainly hit by falling household and government consumption, the former accounting for 55 per cent of the economy’s GDP, on the expenditure side.

Well below 2018’s economic performance, standing at 1.5 per cent, the German economy expanded by 0.6 per cent in 2019, the lowest since 2013.

Similarly, from a European front, a second estimate showed that the Eurozone grew by only 0.1 per cent in the fourth quarter, in-line with analyst’s expectations, and below the 0.3 per cent expansion reported in the previous three-month period. This, being the weakest pace of growth since a 0.4 per cent contraction in the first quarter of 2013.

On a more positive note, preliminary estimates showed that the number of employed persons within the Euro area increased by 0.3 per cent on quarter in the three months to December 2019, accelerating from a 0.1 per cent gain in the previous period and beating market expectations of 0.1 per cent. In-line with the previous quarter, employment increased by 1.0 per cent year-on-year, above market forecasts of 0.8 per cent.

Needless to say, with economic data faltering, any unprecedented shock, such as the recent Coronavirus outbreak, which may cause a widespread disruption, and thus significantly weigh on economic activity, makes matters worse, and slims the chances of a quick recovery.

This is indeed the case for Europe and its largest economy.

Given that China is an important market for German exports, particularly, for industries considered imperative to its economy, such as the automotive industry, the recent outbreak may indeed pose a substantial risk on its expected recovery, forecasted for 2020.

On that note, we reiterate that in order to instil economic growth, and thus fail to succumb to the most recent hiccups, Europe’s market illustrates must continue pushing forward the idea of employing expansionary fiscal policies. Else, Europe’s stimulus through its bond-buying programme, worth €20bn a month, may indeed be all in vain, and may once again prove to be a short-term remedy, rather than a long-term holistic plan.

This article was issued by Christopher Cutajar, Credit Analyst at Calamatta Cuschieri. For more information visit, https://cc.com.mt/. The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.