Europeans returning from their summer vacation will find a more fragile economy at risk of buckling under the threats of energy bills, record inflation and tighter monetary policy, Bloomberg notes.
PMIs due on Tuesday will likely show private sector output contracted for a second month, reinforcing signs that a recession in the 19-nation eurozone is now more likely than not. Business confidence indicators from Germany, France and Italy will likely confirm this direction.
Germany, Europe’s largest economy, has emerged as the region’s weak point, with its outsized industrial base suffering disproportionately from soaring energy costs and persistent supply shortages. Meanwhile, services are not seeing the same kind of tourism boom that is sweeping countries around the Mediterranean as holiday travel recovers post-covid.
An update on Germany’s second-quarter performance on Thursday will reveal whether the negligible contraction initially reported, small enough to round, will be revised higher, or whether consumer spending was strong enough to prevent output from falling – currently.
Next week’s data will be key ingredients for discussions about where monetary policy is headed after the European Central Bank raised interest rates by half a point in July and signaled “further easing” in September without committing to in advance for the size. The next ECB meeting is less than three weeks away and most policymakers have yet to express their preferences.
A tally of the July meeting due on Thursday may provide some insight, and around half of the ECB’s 25 rate-setters – including Executive Council member Isabel Schnabel and Bundesbank chief Joachim Nagel – will have a chance to share their views during the Kansas City Fed’s annual Economic Policy Symposium in Jackson Hole, Wyoming.
ECB President Christine Lagarde will not be making the trip to the Grand Tetons this year. But her comments after the July decision, along with another rise in inflation to just below 9% and expectations that price pressures will rise further, suggest she is leaning towards a bigger move: “We need to get inflation down to 2% in the medium term,” he said. “It’s time to get it done.”
Source: Capital
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