Hieronder volgt een commentaar in het Engels van Bart Hordijk, valuta-analist bij Monex Europe, op de vanmorgen bekend gemaakte economische prognoses van de Europese Commissie.
The single currency vies for the title of the Teflon currency as a pretty sobering economic forecast by the European Commission didn’t weigh much on the euro this morning.
The EC’s report paints a gloomy picture with threats coming from outside as well as from inside of the European Union, stating that “fading support from the external environment” is the main cause for the growth slowdown in Europe, while also “a number of domestic factors” play a role. A manufacturing slowdown in Germany, yellow vests protests in France, Italy coming to a standstill, continued global trade uncertainty and an unresolved Brexit show downside risks for the Eurozone economy are ample. Meanwhile, only Greece and Spain seem to be able to escape the malaise and bring a ray of light.
When looking to the macroeconomic Eurozone surprise index (chart 1) and the most traded currency pair in the world, EURUSD (chart 2), you can even draw the optimistic conclusion that the value of the single currency held quite well through a plethora of negative economic releases. Despite this EURUSD has remained roughly within the 1.13-1.16 trading band.
It can be explained by markets still being hopeful for a rebound in the Eurozone’s economic fortune’s, while also woes of the US dollar itself mitigate euro’s losses somewhat. Nonetheless, with the constant stream of disappointing Eurozone data that seems to be coming from domestic as well as external factors, the big question then becomes how much longer the euro can hold the line. The bloc is desperately in need of some positive news, like a Brexit agreement or a deal between the US and China on trade. However, it seems they may be clutching at straws, while the slowdown in Eurozone growth is very much already here. Moreover, the slowdown in Italy’s growth, which is expected to average 0.2% in 2019, makes its current 2.04% budget deficit target about as credible as anything coming out of Pinocchio's mouth before his nose grows. This highlights the fact that it seems almost unavoidable the Italian debt situation will be back on the agenda somewhere halfway this year.
If nothing changes, risks for the Eurozone appear to the downside, which has the potential of making the euro underperform against other major currencies during 2019.
Chart 1: Eurozone Economic Surprise Index
Chart 2: EURUSD held quite well compared with the negative economic surprises in the Eurozone