Eurozone: Downturn may be more persistent - Westpac

Tim Riddell, Research Analyst at Westpac, suggests that the persistence, or not, of recent weakness will be a critical aspect of Eurozone’s Q2 activity data.

Key Quotes

“Surveys suggest that Eurozone’s downturn may be more persistent than a seasonal and weather-related pullback from the strength seen into 2018, but ECB officials have suggested that the pullback is likely to be transitory and so they still stand by the potential of APP tapering into end 2018.”

“The absence of any near term structural or fiscal reform within EU (Merkel’s coalition is moribund, Macron faces union unrest, Italy risks dysfunction or new elections) means the ECB remains vital economic support.  Should the data pullback prove to be more prolonged, ECB’s commitment to patient, prudent and persistent policy could see a pushback against APP tapering.”

“The BTP-Bund spread is not driving EUR, but it is another confidence barometer.  USD strength remains dominant within the EUR/USD slide towards 1.15-1.17, but also recent Eurozone weakness is clearly in play.”