Europe market review: Germany avoids recession

The eurozone’s economy almost stalled during November, according to IHS Markit, which reported the lowest level of activity for two months. The eurozone’s manufacturing sector remained mired in its steepest downturn since 2013 as the US/China trade war took effect. New orders for goods and services fell for a third consecutive month, and employment growth slowed to its lowest level since January 2015.

  • Christine Lagarde took the helm at the ECB
  • Business conditions continued to deteriorate in Germany
  • Donald Tusk warned that post-Brexit UK will become a “second-rate player”

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The eurozone’s economy almost stalled during November, according to IHS Markit, which reported the lowest level of activity for two months. The eurozone’s manufacturing sector remained mired in its steepest downturn since 2013 as the US/China trade war took effect. New orders for goods and services fell for a third consecutive month, and employment growth slowed to its lowest level since January 2015.

“Germany’s economy narrowly managed to avoid slipping into recession”

Germany’s economy narrowly managed to avoid slipping into recession. Having contracted by 0.2% in the second quarter, the country’s economy expanded by 0.1% during the third quarter. A weak manufacturing sector in Europe’s largest economy was offset by a stronger contribution from household spending. On an annualised basis, Germany’s economy grew by 1%. Nevertheless, business conditions in Germany continued to deteriorate, and IHS Markit found that the fourth quarter of 2019 so far appears to be the worst since the third quarter of 2012. The Dax Index rose by 2.9% during November, while France’s CAC 40 Index increased by 3.1%.

Christine Lagarde took over as President of the European Central Bank (ECB) and called on European governments to support economic growth and monetary policy by increasing public spending. Public investment in the eurozone is still below pre-crisis levels, and President Lagarde observed that the euro area has been “slower to embrace innovation and capitalise on the digital age than others”. This difference is reflected in the eurozone’s productivity growth compared with other countries such as the US: since 2000, productivity growth in the US has been twice as strong as it has in the euro area.

Operating conditions for Italian companies will continue to weaken into 2020, according to S&P Global Ratings, reflecting intensifying geopolitical risks and softer domestic and external demand resulting from the deterioration in global trade conditions. In particular, Italian manufacturers – which helped the country’s economy into recovery in 2016 and 2017 – have not only suffered from a sharp drop in external demand, but have also been caught up in Germany’s supply chain. The FTSE MIB Index rose by 2.5% during November. 

Retiring European Council President Donald Tusk warned that Brexit will result in the UK becoming a “second-rate player”, commenting: “Only as part of a united Europe can the UK play a global role”. Charles Michel, the former Prime Minister of Belgium, replaced Mr Tusk as EC President on 1 December. 


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