European economic indicators: Monday 18 and Friday 22 December

“A year ago, economists were giving up on the EU’s economic outlook, thanks in part to the reliance of its economic powerhouse, Germany, on the internal combustion engine, exports to China and cheap oil and gas from Russia. Inflexible labour markets, weak banks and the risk of sticky inflation (particularly if oil and gas prices head higher during a cold winter) remain additional threats, as do lofty sovereign debts, especially in France and Italy,” says AJ Bell investment director Russ Mould.

“However, the picture no longer looks quite so bleak. Oil and gas prices are in retreat, the EU is well stocked with liquified natural gas (LNG) as it weans itself off Russian supply and – as is also the case in the UK and USA – financial markets are looking forward to cuts from the European Central Bank in its Main Refinancing Rate in 2024 as inflation cools.

Source: European Central Bank

“The ECB has rushed the headline borrowing cost up to 4.50% from zero since June 2022 and investors have decided (rightly or wrongly) that the peak has been reached for this cycle. As a result, the Stoxx Europe 600 index is barely 5% below its January 2022 all-time peak and Germany’s forty-stock DAX benchmark stands at a record high after a near-20% gain in 2023, despite a revival of the late 1990s mantra that the country is the sick man of Europe, at least from an economic point of view.

Source: LSEG Datastream data

“This makes the timing of two European economic sentiment surveys particularly interesting. Germany’s Ifo survey is due out on Monday 18 December and Belgium’s Courbe Synthetique on Friday 22 December.

“After a terrible summer, the Ifo’s business climate reading rose for the third time in a row in November to 87.3, as manufacturing, construction and trade all showed better momentum, even if services fell back a little. Better still, the expectations sub-segment has stopped its slide too and has also shown three consecutive advances.

Source: Ifo, LSEG Datastream data

“The expectations reading of 85.2 was the best since May and perhaps the DAX index has latched onto that. Stock markets are forward-looking mechanisms that look to price in future events, after all.

Source: Ifo, LSEG Datastream data

“Meanwhile, the Belgian Courbe Synthetique rose slightly in November to -15.0, to raise hopes that the bottom was in, as manufacturing, trade, construction and especially services all showed improvement. Note how the Courbe and its six thousand Belgian industrialists have, in the past, been a fair guide to the Stoxx Europe 600 equity index, but that relationship seems to have broken down of late: stock market investors look more optimistic than the industrialists.”

Source: National Bank of Belgium, LSEG Datastream data

These articles are for information purposes only and are not a personal recommendation or advice.