Economic data appears to have stabilised, with a slightly better performance likely next year.
The eurozone economy has been in or near recession for all of this year, with its economy likely to have contracted in the current quarter. However, we think it likely that growth next year will be better.
After a flat performance in the first half of the year, we expect positive growth in the second half. While this won’t be enough to cause anyone to crack open the champagne the outlook for next year will at least be better than this year.
The better performance is likely to be the result of three main factors:
- First, there will be less fiscal tightening next year, especially in Spain and Italy;
- Second, the recent moves by the ECB to support peripheral bond markets have led to a significant easing in funding conditions across the periphery;
- Third, the expected recovery in the global economy should boost exports.
Last Friday’s stronger than expected German IFO business confidence report suggests that Germany has already bottomed and should return to growth at the start of next year.
Other economies may take a little longer to start growing, but confidence across the region should start to return next year.
