01.04.20261 min
Europe: Forecasting in the Fog
Our recent field trip to sunny Frankfurt sharpened our outlook for Germany and the Euro Area, but optimism remains limited. The current German stimulus and impact on the Euro Area is overshadowed by escalating Middle East uncertainties. We argue that the energy shock differs from 2022 and so too will the European Central Bank’s (ECB) response.
Note: Hans Bevers no longer works at Bank Degroof Petercam.
Stagflation alarm bells
As expected, Euro Area confidence data for March pointed to a fragile and uneven growth backdrop. The composite PMI activity index for the region declined to 50.5 from 51.9 in February, driven by a slowdown in services activity (index at 50.1 versus 51.9 previously), while the manufacturing sector recovered to 51.4 after 50.8. The latter was influenced by extended supplier delays, but this was of course due to shipping disruptions rather than higher demand. Strong new orders in German manufacturing were a silver lining but could prove short-lived if the energy crisis continues to intensify (see Box, page 3 ). Additionally, the input price index for industrial producers surged by more than 10 points, fuelled by a sharp increase in energy prices (the highest since October 2022).
