According to recent economic data, the disparity in economic situations is confirmed, and even accentuated, between the United States, where growth is expected to remain strong in Q3 (0.7% q/q in Q3, according to our forecast) and other regions, notably the Eurozone, where the recovery is seemingly running out of steam (0.2% growth in Q3, according to our forecast and our nowcast).
Business climate indicators point to weakness in industry around the world, but more markedly in the Eurozone. By contrast, services are still holding up relatively well in most countries, and even more so in the United States, where the ISM non-manufacturing index is high. France and Japan are two special cases, with a fairly clear deterioration in the business climate in October, including in services (which in France is due to the period of uncertainty around preparing the budget and due to the end of the positive impact of the Olympic Games).
Household confidence is benefiting from recent disinflation, but with some notable exceptions, including Germany (where disinflation appears to be more moderate, particularly in services). The evident cooling in the labour market may also, at the same time, have adversely affected household sentiment in most countries.
These negative developments in key Eurozone countries (France and Germany) pose a negative risk to our Q4 Eurozone forecast (0.3% q/q), while these risks are more balanced in the United States (forecast of 0.5% q/q).
On the back of continued progress on the disinflation front, combined with signs that the labour market is weakening, central banks have taken their monetary easing a step further: the ECB, by cutting its policy rate in both September and October (whereas until recently the consensus had been that only a September move would be made) and the Fed, by cutting the Fed Funds rate by 50 bps rather than 25 bps in September. The Bank of England is expected to follow suit with a 25-bp cut in early November. The BoJ, for its part, is unlikely to announce any further steps in its monetary tightening in the near future.
Article completed on 29 October 2024
