And not only no change in fiscal policy, but more of same. As the carpenter said about his piece of wood, ‘no matter how much I cut off it’s still too short.’
Fertile ground for the ‘bond tax’ (PSI) for the next round of austerity, to reduce the need to further cut public services and raise domestic taxes.
As mentioned before, PMI surveys in Europe are the most timely and important economic data point for the ECB; they have the greatest weight in the ECB’s model of estimating current quarter and quarter ahead growth.
Today’s data was weaker across the board, with Germany surprisingly weak in particular.
- Euro composite PMI fell for the second month in a row, from 49.3 to 48.7
- Weakness was led by manufacturing, down from 49 to 47.7
- German manufacturing was especially weak, falling from 50.2 to 48.1
- French PMI slipped back below 50, from 50.2 to 49
The impact on GDP according to NowCasting (which uses a similar framework as the ECB) was a downward revision to Q2 real GDP growth from +0.6% (annualized) to -0.6% (annualized) for the EuroZone, and from 0.1% (annualized) to -1.2% (annualized) for Germany.
This data should certainly push up the probability of an ECB policy rate cut in May or June.