Euro area back in Expansion albeit momentum remaining weak - Nomura

Research Team at Nomura, notes that after a brief return to Slowdown in August, the euro area business cycle moved back into Expansion in September, though with only marginally positive momentum.

Key Quotes

“Overall, the developments throughout Q3 suggest flat momentum, indicating no strong impact from the Brexit vote on the region’s activity so far.

Following a second consecutive monthly shift in the business cycle position, our leading indicator now suggests a high probability of above 80% of the euro area business cycle remaining in Expansion in October.

Foreign demand momentum returned to positive territory in September with momentum reaching July’s level after falling into negative territory in August. Similarly, hiring intentions momentum accelerated in September reaching the highest level since March 2015. On the price front, expectations improved across most sectors following negative momentum in August against a backdrop of oil price stability.

The reassessment of the state of the economy on the back of additional data since the ECB’s meeting does not suggest a sharp slowdown in activity. As a result, we are now less certain that the downside risks to the growth outlook, which we viewed as larger than the ECB, will materialise. While we continue to see developments on the growth side as marginally weaker than the ECB’s base line, the acceleration in headline inflation in coming months should make it more difficult to justify the need for further increases in the level of accommodation. As a result, we think the ECB’s policy outlook remains dependent on incoming data with a substantial possibility of no further increases in the level of accommodation beyond March 2017.

Growth ranking: The country ranking remained broadly unchanged in September, with Cyprus experiencing the fastest implied growth rate in the region and Greece the weakest. Momentum ranking: 5 out of 14 countries experienced faster momentum (tick down from 6 in August), with the number of countries experiencing negative momentum edging down (6 in September down from 7 in August).”