Will this be the final easing countdown for Europe and the ECB?

We find ourselves in the economic equivalent of the Phoney War period of the Second World War as we wait for tomorrow’s policy announcement from the European Central Bank. But it is also a period where events are moving quite quickly. Here is the IMF from yesterday.

In our July update of the World Economic Outlook we are revising downward our projection for global growth to 3.2 percent in 2019 and 3.5 percent in 2020. While this is a modest revision of 0.1 percentage points for both years relative to our projections in April, it comes on top of previous significant downward revisions.

It is not the numbers that bother me as the IMF is far from the best forecaster but the direction of travel where it has found itself revising the outlook downwards. Also there was a curious additional part to this IMF output as the quite below shows.

Financial conditions in the United States and the euro area have further eased, as the US Federal Reserve and the European Central Bank adopted a more accommodative monetary policy stance.

I think they mean are expected to do so. Ironically this came with rumours that the ECB will not act tomorrow and will instead guide us to what it will do in September.

Business Surveys

After this mornings Purchasing Managers Indices the ECB view will be more like definitely maybe on a delay. It was only yesterday that I was pointing out that France had been doing better than its peers.

Modest growth was driven by the service sector,
which posted an expansion in business activity for
the fourth month in a row. However, the rate of
increase decelerated from June and was moderate
overall. Meanwhile, manufacturing output slipped
back into contraction territory, following a first rise for
four months in June. That said, the decline was only

So according to this survey the rate of growth is slowing in France and you will not be surprised to see what is the driving force of this.

New export business was broadly stagnant at the
start of the third quarter, with a contraction in
international sales at manufacturers broadly
offsetting a modest rise at services firms.

A few minutes later the news from Germany was also downbeat.

The health of German manufacturing went from
bad to worse in July, according to the flash PMI
data, raising the risk of the euro area’s largest
member state entering a mild technical recession.
“The performance from Germany’s goods
producers in July is the worst recorded by the
survey in seven years, with the renewed weakness
mainly stemming from an accelerated drop in
export orders – the most marked seen in over a

We have got used to weak readings for this sector in 2019 but the 43.1 for July so far was the weakest we have seen. The services sector is doing better but even it is now slowing.

Still solid growth in the service sector means that
the German economy is just about keeping its head
above water for now, but even here there are signs
of increased worries among companies as
optimism hit a three-and-a-half year low

If we sweep all that up and look at the total Euro area we were told this.

The eurozone economy relapsed in July, with the
PMI giving up the gains seen in May and June to
signal one of the weakest expansions seen over the
past six years. The pace of GDP growth looks set
to weaken from the 0.2% rate indicated for the
second quarter closer to 0.1% in the third quarter.

That will get the attention of the ECB. We know that these PMI surveys are far from always correct but central bankers like them and the ECB will be very concerned about the Euro economy continuing to slow. It will not agree with it all as we know the German Bundesbank thinks that the German economy contracted in the second quarter whereas Markit is more positive. But that means it starts from a weaker position.

Money Supply

The opening salvo here did buck the bad news trend.

Annual growth rate of narrower monetary aggregate M1, comprising currency in circulation and overnight deposits, stood at 7.2% in June, unchanged from previous month.

That is better than the 6.2% with which 2019 opened and gave us another hint that it was going to be a rough first half to 2019 for the Euro area. The situation has improved in monetary terms but that has collided with the trade war.

However the wider measure was not good.

The annual growth rate of the broad monetary aggregate M3 decreased to 4.5% in June 2019 from 4.8% in May, averaging 4.7% in the three months up to June.

If we break it down we see this.

Looking at the components contributions to the annual growth rate of M3, the narrower aggregate M1 contributed 4.8 percentage points (as in the previous month),

So the slowing was in the bread money components represented by M2 and M3. Also if we look at the other components some of this is coming externally.

net external assets contributed 2.4 percentage points (as in the previous month)

I am always cautious about over analysing the components as I have seen that go very wrong in the past but it would be preferable if the growth was domestic. Especially as the ECB bank survey released yesterday suggested that credit was becoming harder to find.

According to the July 2019 bank lending survey, credit standards tightened in the second quarter of 2019 for loans to enterprises, marking the end of the net easing
period started in 2014, as concerns about the economic outlook and increased risk aversion translated into tighter internal guidelines and loan approval criteria despite
favourable funding conditions. Credit standards also tightened for consumer credit, in line with developments in the previous quarter…..



The situation here comes out of the deepest fears of the ECB. What I mean by that is that we have not yet had 7 full months from when the last easing programme ended. Firstly that poses deep question such as what good did it do and why can’t the Euro area grow without stimulus? But in terms of the ECB meeting and policy they are likely to be ignored. Instead it will focus on factors such as its own claim ( Mario Draghi) that the QE programme and a -0.4% deposit rate contributed 1.5% of GDP growth to the Euro area.

Also any proper credit flow relies on the banks and they continue to look thoroughly zombified. From CNBC.

German lender Deutsche Bank reported a weaker-than-expected net loss of 3.15 billion euros ($3.51 billion) for the second quarter of 2019.

Analysts polled by research firm Refinitiv had estimated a net loss of 1.7 billion euros for the period, due to the bank’s massive restructuring program announced earlier this month. The German bank itself had previously said it expected to report a net loss of 2.8 billion euros for the quarter.

The share price has fallen 4% this morning and back below 7 Euros in response to the news that things are even worse than we were told earlier this month. Next via Reuters there was this.

Italy’s biggest bank by assets UniCredit (CRDI.MI) is considering cutting around 10,000 jobs, or 10% of its global workforce, as part of a new business plan to be unveiled in December, two sources close to the matter said on Monday.

It is not my purpose today to look at those two banks individually but more to use them of examples of a banking system that is troubled if not broken. If we switch to Spain which has been the best performing of the main Euro area economies in the Euro boom I note that many of its banks have share prices hitting new lows.

Thus after all tomorrow for the ECB may yet sing along to this from Europe.

The final countdown
It’s the final countdown
The final countdown
The final countdown (final countdown)
Ohhh. It’s the final countdown



14 thoughts on “Will this be the final easing countdown for Europe and the ECB?

  1. Not talking politics, but a No Deal Brexit, which is looking more likely, is not going to do any bodies economy any good – a last minute sensible deal? Silly of me, won’t happen, we have politicians in charge.

    • I’m just actually hoping Borris has some kind of strategy for getting around Parliament and walking away as I don’t see Europe will give in but they might well do that in the end if Borris plays hard ball with his demands.

      I happen to think Borris would be the best person to deal with the after affects of a no deal his enthusiasm is Thatcherite and that is what would be needed in a difficult time when the need be to fly the Union Flag and say buy British.

      As for todays theme on a countdown for Europe the figures released from Germany today on manufacturing made grim reading and is a sign of further easing and rate cuts.

      Everyone needs to accept that world growth is slowing world debt is too high, asset prices are too high including property and it look to me like the next financial crisis is about to happen and low interest rates and indeed negative interest rates may become normalised for some years to come.

      Many don’t believe we have recovered from the last financial crisis particularly in respect of wages and neither do I.

      Finally its a credit to Shaun for highlighting many of these issues its a pity other analysts, economists and bankers not as honest in relation to these matters.

    • Hi Chris

      Yes indeed and if there is a delay in the ECB acting ( in effect announcing tomorrow for September) then we will get talk of policies being “calibrated”

      1. As you suggest tiering of interest-rates for the banks to reduce the impact of the Deposit Rate going lower than -0.4%. Unless they think of something especially revolutionary that only solves about 1/3 rd of the problem.

      2. Increasing the amount of any bond that can be held from the present 33% otherwise they will run out of German and Dutch bonds they can buy.

  2. I don’t trust Johnson or the Tories at all, and I am of the firm belief that he would never have been allowed to become leader if he was serious about a hard BREXIT, I fully expect him to negotiate another “deal” like TMay, that guarantees our remaining in the EU, the single market, paying in vast sums of money for the privilege and keeping our borders wide open to mass uncontrolled immigration – both European and more importantly non-European. The public have been brainwashed by the media into thinking we need to negotiate a “deal” in order to leave, we can just leave without a deal!

    And here is the acronym to describe it all BRINO – BREXIT In Name Only.

    The back-u plan is to have Labour or Labour/Lib Dems to win the general election should one be called ans for them to sign us up to stay in perpetuity.

    That’s why there is this hysterical fake anti-semitism media campaign to remove Corbyn before then.
    Farage will never win enough seats to to stop it.

    Back O/T though, the ECB and all central banks will not stop until the whole system blows up, going ever more negative, more and more QE, buying equities, UBI etc etc, they are trying to protect their control of the worlds economy(and governments) and won’t just walk away, even if it means destroying what they are trying to protect.

    • Hi Kevin

      I looked at this before when it was first suggested ( 1-2 months ago I think) and it appears to be back.

      I am sure he can provide a list ( of his company’s holdings…) as he literally talks his own book.

  3. Hi Shaun,

    Problems ahoy for Europe… These figures are pretty grim, and potentially heading into the teeth of a slow down with interest rates already negative is surely better avoided. I wonder, do the folks who run the EU not see a no-deal Brexit is going to kick them over the edge into a ruinous recession at exactly the wrong time?

    Turning to the Euro banks, in my view the problems with using the Final Countdown as a musical analogy are twofold. I will accept accusations that I might be over-analysing the lyrics here, but the line which says “I guess there’s no one to blame” is clearly not correct. The guilty people reside i Frankfurt. Then the fact that the key lyric is repeated so often that one wonders whether the final countdown has started from infinity. It’s almost as if they are kicking the can to infinity and beyond…. oh wait!!!

    Andy Z

    • Hi Andy Z

      Perhaps the banks will be encouraged to issue some zero coupon perpetual bonds which will be eligible for the ECB QE programme. Perfect for the banks if not for everyone else.

      As to “I guess there’s no one to blame” it is perfect for any banking collapse unless of course they think they can pin the blame on some financial market blogging “terrorists”.

  4. So the “helicopter money” is arriving to save the day just as we all hoped and dreamed – for select European multinationals!!
    (no interest payments- declining balanced owed-rollover debt privileges)
    Well like w.w.jacobs “Money’s Paw” it’s not “exactly” what we wished for-but hey- who’s being choosey here!
    Crank up the M and A department- it’s lipstick on the lame horse time. Please- I’m trying to contain my excitement about this!! Onward to Infinity then!!

  5. Sorry I forgot the meditation mantra:
    “I love negative interest rate corporate bonds”
    So chant this mantra to help you fall asleep in the heat tonight. 100 per cent satisfaction guaranteed!!
    1. Some conditions apply-
    2. Offer may be void in your jurisdiction

  6. Pingback: Will this be the final easing countdown for Europe and the ECB? - Free World Economic Report

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