Sep 24, 2019

The eurozone economy is getting worse

Data: Investing.com; Chart: Lazaro Gamio/Axios

European Central Bank President Mario Draghi and a spate of data releases from IHS Markit on Monday painted an incredibly somber picture of the economic situation in the eurozone.

Why it matters: The eurozone looks like it's headed for recession, if it isn't in one right now. And, as Draghi pointed out, there's little on the horizon that gives much hope for the future.

What they're saying: “Recent data and forward-looking indicators — such as new export orders in manufacturing — do not show convincing signs of a rebound in growth in the near future,” Draghi told the European Parliament’s Committee on Economic and Monetary Affairs.

  • It was a far cry from "Whatever it takes," the 3-word mantra that Draghi is best known for saying in the midst of Europe's 2012 downturn.

What they're (really) saying: Phil Smith, an economist at IHS Markit, which compiles the reports on manufacturing and service sector activity, was far less kind.

  • “The manufacturing numbers are simply awful," he said in a statement accompanying the release. The longer the weakness in manufacturing persists, the greater the risks that other sectors of the economy will be affected by the slowdown."

The big picture: The ECB has cut interest rates to -0.5% and will begin pumping around $22 billion a month into the economy through its bond buying program, but its president has used his last 2 public appearances to warn that it's not enough.

  • “We need a coherent economic strategy in the euro area that complements and enhances the effectiveness of monetary policy,” Draghi said.

Between the lines: The data back up his point. The eurozone as a whole had its worst reading on manufacturing in 7 years in September while Germany's manufacturing sector showed its worst reading in a decade. The services sector is also starting to slip.

  • "All the uncertainty around trade wars, the outlook for the car industry and Brexit are paralyzing order books, with September seeing the worst performance from the sector since the depths of the financial crisis in 2009,” Smith added.
  • “With job creation across Germany stalling, the domestic-oriented service sector has lost one of its main pillars of growth. A first fall in services new business for over four-and-a-half years provides evidence that demand across Germany is already starting to deteriorate."

Go deeper: ECB head Mario Draghi's time is running out

Go deeper

Things may not be that bad for global manufacturing

Illustration: Rebecca Zisser/Axios

Tuesday's dramatic slide in U.S. manufacturing to the weakest level in 10 years generated jarring headlines and spooked the market, but there are signs the sector is improving on a global level.

Why it matters: Even in the U.S., things may not be as bad as the Institute for Supply Management's grim Tuesday report would suggest.

Go deeperArrowOct 3, 2019

Services data is following manufacturing

Data: Institute for Supply Management; Chart: Axios Visuals

Bullish market analysts and money managers have been somewhat dismissive of deteriorating manufacturing data this year and its importance, arguing that the sector makes up a minute portion of the U.S. economy.

Why it matters: While that is true, manufacturing is a leading indicator, and more bearish investors have insisted the sector's decline would drag the rest of the economy down with it.

Go deeperArrowOct 4, 2019

Index tracking U.S. services sector activity falls to 3-year low

An index that tracks activity within the services industry fell to a 3-year low in September, while a gauge of hiring within the sector dropped to the lowest level since 2010, according to the ISM non-manufacturing activity survey.

Why it matters: It’s the latest indicator pointing to an economic slowdown in the shadow of a trade war between the world's 2 largest economies, following the 2nd straight month of contraction in the U.S. manufacturing sector. While the services industry is still growing, this is the first sign that the all-important services industry — which makes up a way bigger slice of the economy than manufacturing (about 70%) — is starting feeling the blow.

Go deeper: How the China trade war threatens U.S. manufacturing jobs