Following a mixed picture from the euro area PMIs for May which were released last week, the European Commission’s economic sentiment indicator is expected to remain stable at 103.7. Such a level would be consistent with analysts view that economic recovery will be firm in Q2 (0.4% qoq) but slower than during past cyclical recoveries, says Societe Generale. Economic confidence continues to be supported by the positives of QE, improving credit conditions, low oil prices and the weak euro. The strengthening in consumption has driven recent improvements in economic sentiment whereas other engines of growth (net export, investment) take time to recover. This positive trend in economic confidence is capped by many factors. Focusing on the consumer, the rebound in fuel prices will continue to feed through thus lowering the growth of household purchasing power. Analysts’ view is that the improvement in consumption growth will begin to ease in H2. Regarding the net external channel which negatively contributed to GDP growth in Q1, the economic multipliers are expected to be lower today than during previous recoveries. Disappointing activity in emergingcountries such as China (in addition to the US) suggest global trade is slowing down, which has a bigger impact on net exports than the weaker euro. Lastly, debt burdens, uncertainty surrounding Greece and geopolitical risks (albeit slightly lower) continues to weigh on business confidence.
The material has been provided by InstaForex Company – www.instaforex.com