October 2018
European equity markets fell during October against a backdrop of intensifying worries relating to the impact of rising protectionism, Brexit and concerns over Italy's budget. The EC rejected Italy's draft budget proposals and ordered the country's leaders to revise its plans. Germany's Chancellor Angela Merkel announced that she would be quitting politics in 2021 when her term ends.
- Economic growth expectations have deteriorated
- The eurozone's economy grew by 1.7% YoY in Q3
- Moody's downgraded Italy's credit rating by one notch
To view the series of market updates through October, click here
European equity markets fell during October against a backdrop of intensifying worries relating to the impact of rising protectionism, Brexit and concerns over Italy's budget. The European Commission (EC) rejected Italy's draft budget proposals and ordered the country's leaders to revise its plans. Credit ratings agency Moody's believes that Italy's strategy will expose the economy to future domestically or externally generated shocks, and downgraded Italy's credit rating from "Baa2" to "Baa3". The FTSE MIB Index fell by 8% over October as a whole.
“Europ's economic outlook appears to be wobbling”
Europe's economic outlook appears to be wobbling. The European Commission (EC) reported that economic sentiment had posted its tenth consecutive monthly decline during October. Meanwhile, the pace of economic growth in the uerozone decelerated to its slowest rate in more than two years during October, according to IHS Markit. Global trade disputes are dampening export activity and, looking ahead, expectations for future growth declined to their lowest level for almost four years. The European Central Bank (ECB) expects growth in the eurozone's economy to slow from 2.5% in 2017 to 2% in 2018.
ECB President Mario Draghi acknowledged that momentum had weakened, but policymakers do not regard the change as sufficient to change the "baseline scenario" in which the central bank's programme of stimulus measures will wind up in December. Although he admitted that Europe still needed "significant monetary policy stimulus" and pointed to "a bunch of uncertainties", he insisted: "We're talking about weaker momentum, not a downturn".
Having expanded by 2.2% year on year in the second quarter of 2018, the eurozone's economy grew by only 1.7% during the third quarter. Economic growth picked up in France, albeit by less than expected. The French economy expanded by 0.4% in the third quarter, following growth of 0.2% in the second quarter. Growth was boosted by an acceleration in domestic demand. The CAC 40 Index fell by 6.3% during October. Elsewhere, Germany's Chancellor Angela Merkel announced that she would be quitting politics in 2021 when her term ends. Over October, the benchmark Germany's Dax Index declined by 7.8%.
The annualised rate of inflation in the eurozone is calculated to have risen to 2.2% in October, compared with September's rate of 2.1%. Inflationary pressures have been fuelled an increase in energy prices. The ECB works to a medium-term inflation target of "below, but close to, 2%".
A version of this and other market briefings are available to use in our newsletter builder feature. Click here
