Europe Stays in Gloomy Mood - January 2019

Europe Stays in Gloomy Mood as Germany Slashes Its 2019 Outlook

Euro-area confidence extended its worst losing streak in a decade and Germany’s government added to the pain by slashing its forecast for the region’s largest economy.

With countries across the 19-nation currency zone facing a range of domestic risks and trade uncertainties, sentiment tumbled to the lowest in more than two years in a report Wednesday. Germany predicted its economy will only grow 1 percent in 2019, the least in six years.

Confidence in the euro-area economy continues to decline

The euro area has turned into a weak spot of the world economy. The ECB acknowledged risks have “moved to the downside,’’ and when the IMF cut its global growth forecast this month, Germany and Italy had the biggest downward revisions.

In its German outlook, the government in Berlin downgraded its 2019 prediction to 1 percent from 1.8 percent, citing in part the deteriorating global trading environment.

Economic growth is set to weaken to the slowest pace in six years in 2019 to 1%. The report will fuel the pessimism about Europe after an almost non-stop deluge of disappointing economic indicators recently. And it may continue on Thursday, with figures forecast to show Italy probably slipped into recession at the end of 2018. GDP figures for Spain and the euro area are also due.

Investors have been adding to bets in recent weeks that the weak economic data will keep interest rates lower for longer. German 10-year yields touched their lowest level in more than two years this month and there’s speculation that they could drop below zero once again.

Federal Reserve Chairman Jerome Powell will offer his view of the U.S. outlook when he holds a press conference on Wednesday. He’s also had to take note of a changed global backdrop and is expected to emphasise patience in raising interest rates.

France, the euro area’s second-largest economy, reported disappointing domestic performance in the fourth quarter. A surge in exports boosted growth to 0.3 percent, but household expenditure stagnated. A separate report showed a huge plunge in December alone, when retailers were dogged by Yellow Vest protests.

Still, France will wait until April to revise its forecasts, officials say. For now it’s sticking to the prediction of 1.7 percent expansion in 2019.