» Insights: Contraction Now Embracing Germany Decision Economics

Insights: Contraction Now Embracing Germany

Posted June 25, 2012 by Editor

[private]

  •  While PMI numbers are not signalling a pickup in the pace of contraction, June flash PMIs suggest that the Eurozone contraction continues. More worryingly, there is evidence that activity is declining on a broader basis geographically—including clearer weakness in Germany.
  • The clearer weakness seen since April in aggregated PMI numbers suggests fresh GDP contraction in Q2, albeit one that will not be much worse than a 0.5% drop. This would hint at a 0.7% contraction in real GDP for 2012, with a low likelihood of 2013 growth being robust enough to even offset the 2012 contraction.
  • As a result, price pressures will likely ease further and the ECB will be pressured to provide more stimulus. The DE view is for a 50 bp cut in the refi rate at the July 5 ECB meeting, with the possibility of new unconventional policy tools.

Eurozone_contraction_in_germany_062112[/private]