The dovish tilt by the Fed came after European Central Bank President Mario Draghi signaled he
ZURICH: Mario Draghi didn’t pull his punches when he said the economic outlook is getting "worse and worse.” This week, he’ll get more insight into how bad it really is out there.
Growth probably slowed to 0.2% in the second quarter, a below-trend pace that will do little to help the European Central Bank president’s effort to push inflation higher.
Business surveys across the region will provide a detailed look at how companies are coping with trade tensions and weaker demand, and may put to rest any hopes for a better performance this quarter.
The feeble economic backdrop is also hitting corporate Europe, particularly carmakers, with downbeat statements recently from companies including Germany’s Daimler and France’s Renault.
Services growth is still helping to counter that, but may only be able to prop things up for so long.
What Bloomberg’s economists say:
"Growth is likely to slip to 0.2% from 0.4% in the first quarter. But there’s more to come, and we expect a similar performance in the third quarter. With the rate of expansion dipping below trend, a big monetary-stimulus package can be expected in September.”
There may also be disappointing news on inflation this week, with both the headline and core rates down near 1%. A survey last Friday showed longer-term inflation expectations are falling, and it’s pretty clear what Draghi thinks about that. "We don’t like what we see on the inflation front,” he said last week.
Draghi has given staff at the ECB and national central banks a mission before the next meeting to examine what policy makers can do to help the economy. More interest rate cuts and a new round of bond purchases are on that list, despite some doubts about how much room there’s left for both tools.
This week’s plethora of economic numbers will play into their analysis, as well as help them prepare new forecasts for the big Sept. 12 decision.
On the growth front, the second-quarter figures are forecast to show a contraction in Italy and possibly Germany. (Note, German data aren’t released until Aug. 14). Spain and France look more solid, though increasing external risks mean the broader trend is still for softer momentum. - Bloomberg
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