Upside Surprises Mean Growth Expectations Have Bottomed For Now (2/2)

As we've noted previously, even as confidence data (and perhaps activity) may be bottoming out in Q4, the hard data looks to still have some room to fall in the eurozone - especially in the manufacturing / industrial sectors which have so far largely diverged from weaker sentiment.

• To be sure, a technical recession is still the firm expectation: the BBG median forecast for Q/Q GDP shows -0.4% in each of Q4 2022 and Q1 2023, before picking up thereafter.
• But in general the data continue to point to stabilization in expectations - and indeed, the 2023 median BBG real GDP forecast has remained at -0.1% since late October, having plummeted from 2.5% at the outset of the Russia-Ukraine war.
• Eurozone economic readings are currently surprising to the upside to the greatest degree since summer 2021, per Citi's economic surprise indices.
• This marks a recent divergence from the UK (where data had briefly upwardly surprised in Oct/Nov as expectations may have been unduly depressed by the fiscal/Gilt turmoil) and the US (where activity data has been solid but mixed with good labor market data offset by weak manufacturing and housing).

Source: Citi Economic Surprise Indices, MNI