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EUROZONE DATA: Robust Spanish Business Sentiment An Anomaly In Big Four

EUROZONE DATA
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  • Today’s Ifo business climate index may have been stronger than expected in October at 86.5 after 85.4 but it paints a far from healthy picture, as discussed earlier.
  • There has been a post-pandemic structural break compared to historical relationships with GDP growth, but it nevertheless offers sizeable downside risk to already very weak GDP growth that has languished at either zero or a touch negative for well over a year now.
  • It’s a timely reminder of how German growth continues to heavily lag other major Eurozone economies, with significant structural factors at play.
  • This is something our policy team have touched on multiple times, including capital misallocation (here)  and the related deindustrialisation trend (here) plus specific challenges to its automotive industry (here).
  • However, it’s also notable that both France and Italy have also seen waning momentum in business sentiment recently. In particular, the Istat business confidence index fell from 95.6 to 93.4 in today’s October release for its lowest since Apr 2021. The French INSEE business climate index meanwhile at 97.3 in yesterday's October report is off recent lows but remains below its long-term average of 100.
  • It leaves Spain, with strong real GDP growth of 3.1% Y/Y and domestic demand growth of 2.5% Y/Y back in Q2 as one of the few significant growth drivers across the Eurozone. 
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  • Today’s Ifo business climate index may have been stronger than expected in October at 86.5 after 85.4 but it paints a far from healthy picture, as discussed earlier.
  • There has been a post-pandemic structural break compared to historical relationships with GDP growth, but it nevertheless offers sizeable downside risk to already very weak GDP growth that has languished at either zero or a touch negative for well over a year now.
  • It’s a timely reminder of how German growth continues to heavily lag other major Eurozone economies, with significant structural factors at play.
  • This is something our policy team have touched on multiple times, including capital misallocation (here)  and the related deindustrialisation trend (here) plus specific challenges to its automotive industry (here).
  • However, it’s also notable that both France and Italy have also seen waning momentum in business sentiment recently. In particular, the Istat business confidence index fell from 95.6 to 93.4 in today’s October release for its lowest since Apr 2021. The French INSEE business climate index meanwhile at 97.3 in yesterday's October report is off recent lows but remains below its long-term average of 100.
  • It leaves Spain, with strong real GDP growth of 3.1% Y/Y and domestic demand growth of 2.5% Y/Y back in Q2 as one of the few significant growth drivers across the Eurozone.