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Eurozone: The consensus amongst economists expects a growth pick-up. Why?

2/11/2020

The contributors to the Bloomberg consensus forecast expect a pick-up in eurozone growth in the course of this year. This is shown by a higher median forecast for the 4th quarter compared to the 1st but in addition, the entire distribution of forecasts shifts to the right. This view is underpinned by a decline in uncertainty, the very accommodative monetary environment, some fiscal support in certain countries and an improvement in export orders.

TRANSCRIPT // Eurozone: The consensus amongst economists expects a growth pick-up. Why? : February 2020

Chart of the Month

François Doux: The Chart of the Month looks at growth in the eurozone.

William De Vijlder, hello.

William De Vijlder: Hello François.

François Doux: Your outlook calls for annualised growth of 0.7% in the first quarter and 1.1% in the fourth quarter. This chart shows the forecasts of other economists as well as your own. It is based on a survey of 35 economic forecasters. What is your take on this? Do other forecasters also expect eurozone growth to accelerate?

William De Vijlder: Yes they do. That is what this chart shows based on a Bloomberg survey. The median is 0.9% for Q1 and 1.1% for Q4. The reason why I brought this chart is because we typically look at the median or average growth. What I find interesting here is the distribution. What is striking, when we look more closely, is the blue bars, which show the distribution for Q1. On the far left, for example, we can see that three forecasters are forecasting growth of 0.6%, and 11 are forecasting growth of 0.9%. If we compare the blue bars of Q1 with the dotted red line of Q4, what is striking is that the distribution flattens out and then shifts to the right.

This clearly shows that economists expect the economy to perform somewhat better in the second half of the year.

François Doux: Why?

William De Vijlder: Because of a combination of factors. First, uncertainty has declined, with the US-China trade agreement and then Brexit. That is the first factor. Second, the monetary environment is providing real support via extremely low interest rates. The financial markets are performing well, which implies very good financing conditions for companies. There has also been some fiscal support. Another extremely important factor is the improvement in exports, and order books are also beginning to pick up. All of this is part of a global movement. With Europe’s very open economy, it obviously stands to benefit more than the others.

This is why forecasters expect the economy to hold up better in the second half.

François Doux: So median growth of 0.7% in the first quarter and 1.1% in the fourth quarter.

One last question. Is the configuration the same for the United States?

William De Vijlder: Yes and no. Yes, because once again a majority of forecasters expect growth to be stronger in the second half, for largely the same reasons as those that apply to the eurozone.

In contrast, the tail to the left is also getting longer. This is very important. Indeed, 4 out of the 75 forecasters contributing to the consensus forecast are looking for a recession in Q4 2020. Although we do not agree at all with this scenario, it illustrates why it is useful to look at this type of chart.

François Doux: Place your bets! Thank you, William De Vijlder. In a moment, we will head for Africa with Three Questions for Stéphane Alby on the end of the CFA franc and its replacement by a new currency, the eco, in eight countries

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