4/7/20: ifo Institute Eurozone Growth Outlook

Germany's ifo Institute issued a new growth outlook for Eurozone economy:

• "Overall, the eurozone economy is likely to see a sharp recession in the first half of 2020. 
• "GDP already contracted in Q1 by 3.6%. 
• "In Q2, the decline of GDP is forecast to be historic (-12.3%). 
• "On the other hand, the recovery is likely to be quick supported by massive stimuli in some eurozone countries with GDP growth reaching +8.3% in Q3 and +2.8% in Q4 2020. 
• "Yet, the GDP level at the end of last year will not be reached by the end of this year."

In 1Q 2020:

• GDP fell by 3.6%. 
• "The greatest negative contribution came from private consumption. 
• "... firms hold back their investments due to liquidity issues and uncertainty on future developments. 
• "... external demand was weak and caused exports to plunge. 
• "Economic activity went down by 5.3% (Italy), 5.3% (France) and 5.2% (Spain). Germany was affected less severely with GDP contracting by 2.2%. 

Dynamics into June:

• "The European Commission’s economic sentiment indicator fell from 94 points in March further to 65 points in April, rebounded somewhat in May and increased strongly in June up to almost 76 points."
• "The IHS Markit composite purchasing manager’s index reflects a similar development as it dropped from 30 points in March to as low as 14 points in April. In May it recovered to 32 and in June again up to 48 points." Note: Markit PMIs below 50 indicate continued, compounded contraction, as a rise in index from 32 to 48 between May and June means that contraction was weaker in June.

Summary of forecasts:

Headwinds to the above forecast:

• "Currently, economic projections are made in face of high epidemiological uncertainty. ... This forecast assumes that a second COVID-19 wave will be prevented. The occurrence of a second wave, with containment measures to being introduced again, is thus a downward risk for our forecast. 
• "Another uncertainty for this forecast is that we are still learning about consumer reactions to containment measures and it is still unclear, how quickly consumption behavior will normalize.
• "In addition, the liquidity situation of many companies is deteriorating rapidly. An unexpectedly high number of insolvencies might disturb the economic recovery and cause bigger than expected problems for the banking sector. Currently, in many countries new regulations for postponing insolvencies were introduced, which means that these will become evident later than usual, probably not before autumn. 
• "Also, numerous private households might run into solvency issues due to lower income and a worsening labour market situation."

In contrast, here are the IMF latest forecasts for the euro area:

Eurocoin leading growth indicator: https://trueeconomics.blogspot.com/2020/06/29620-eurocoin-growth-indicator-june.html.

Markit PMIs: