An unpleasant surprise may lurk in euro zone GDP numbers
The euro zone economy may be doing far worse than most economists want to believe. Thatās not good news for a central bank trying to rescue the single currency through a hotly-contested bond purchasing programme that has yet to get started.
The latest flash purchasing managersā indexes, which cover thousands of euro zone companies, suggest the third quarter will mark the euro zoneās worst economic performance since the dark days of early 2009, according to Markit, which compiles them.
They predict the economy likely shrank by 0.6 percent in the quarter that finishes at the end of this month.
Thatās far gloomier than the consensus 0.2 percent decline predicted in the last weekās Reuters poll of around 35 economists, and even more pessimistic than the pollās lowest forecast of 0.5 percent.
Aside from some German resilience, there was an unexpectedly severe decline reported by French firms. Flash PMIs donāt cover Spain and Italy ā those figures come out at the end of the month. But itās a pretty sure bet thereās been a deterioration there since last month.
The same situation arose in the second quarter, and on that occasion the economists called it right.
The Reuters Poll consensus correctly predicted a 0.2 percent contraction, whereas at the time, Markit said its PMIs were roughly consistent with a 0.6 percent contraction.
But thereās every reason to think that wonāt be the case this time, as this chart shows. The PMIs have given a good read on the state of the euro zone economy over the last 12 years with great accuracy ā not something that can be said of most economists.
āWe think the GDP numbers are going to be catching up with the survey data,ā says Chris Williamson, Markitās chief economist.
āFor the euro zone as a whole, the third quarter looks quite dismal. We think itās going to be the weakest GDP weāve seen since early 2009.ā
In a further sign companies are really feeling the strain of the regionās debt crisis, German business sentiment dropped for a fifth successive month in September, according to the Ifo Institute, defying hopes for a slight rise.
So don’t be surprised to hear a few gasps from economists when Eurostat releases its first estimate of third quarter euro zone GDP in November.
Graphic by Scott Barber (@scottybarber)