Monthly Review: Signs of a “Sustained Recovery” in the Euro Zone?

Thanks to forex market participants still crossing their fingers that the Greek debt drama will have a happy ending, the euro has managed to stay afloat against most of its rivals. But do fundamentals also support a euro rally? Here’s a quick rundown of the economic reports released from the euro zone this month:

Inflation

forex eurThe latest inflation readings paint a mixed picture, as the final headline CPI for March showed a 0.1% year-over-year decline while the core CPI for the same month indicated an annualized 0.6% uptick. Compared to the previous month’s readings, headline CPI actually saw an improvement from February’s -0.3% figure.

Components of the March inflation report show that negative annual readings were recorded for twelve out of the nineteen euro zone member states. Fuel costs still led the declines while feeble price gains were reported by restaurants and cafés.

Business Conditions

A few business indicators have shown green shoots for the euro zone in the past months, hinting that a rebound might be underway. Industrial production marked a 1.1% jump for February, much stronger than the projected 0.3% rise, while the higher than expected trade surplus suggested that export activity is picking up.

However, manufacturing and services PMI estimates from Germany and France, the region’s top two economies, weren’t so upbeat for April as the readings all came in the red. In France, the manufacturing industry even reported a sharper contraction, with the index falling from 48.8 to 48.4 instead of improving to the estimated 49.4 figure. Their services PMI dipped from 52.4 to 50.8, indicating a weaker expansion in the sector.

Germany also reported a slower pace of expansion in both its manufacturing and services sectors, dragging the region’s overall PMI readings lower. The euro zone manufacturing PMI slumped from 52.2 to 51.9 while the services PMI fell from 54.2 to 53.7, although these might still be subject to revisions later on.

Sentiment

With these mixed economic signals from the euro zone, it’s no surprise that business and consumer sentiment in the region are also giving conflicting results. According to the April ZEW survey, the economic sentiment index in Germany dipped from 54.8 to 53.3 while the region’s reading ticked up from 62.4 to 64.8.

On a more upbeat note, investors seem to be convinced that the euro zone is facing brighter days ahead, as the Sentix investor confidence figure climbed from 18.6 to 20.0 in April. Aside from that, Germany saw small improvements in its Ifo business climate survey (107.9 to 108.6) and in its GfK consumer climate index (10.0 to 10.1).

In a nutshell, it seems that the region isn’t performing as poorly as it used to, but it may be too early to chalk these few improvements up as a sustained recovery. Perhaps another month or two of positive economic developments might be enough to assure forex market watchers that the ECB’s stimulus efforts are taking effect and that the euro zone is no longer the problem child of the global economy.

Do you think the euro can be able to hold on to its recent gains spurred by improving economic data? Share your thoughts in our comments section below!

 

  • ForExchange

    Hi Forex Gump,

    nice writing. IMO important is that not all number are negative like they used it. These changes do not occur in one day. Improvements are seen and they are keep coming. I do not consider EUR as the weakest currency anymore. Until new trends develop I stay away from EUR pairs.

    FE

    • Thanks for checking out my blog! Yep, I’m also reevaluating my previous strong short bias against the euro now that the region seems to be catching up to its peers now. Let’s see how it goes!

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