Advanced indicators continue to point to very weak economic growth ahead. We expect +0.2% q/q in both Q3 and Q4. The manufacturing PMI fell -1.4 points to 45.6 in September (consensus was at 47.3) on the back of further deteriorations in new orders and employment intentions. Services fell from 53.5 to 52.0, relatively in line with consensus. While the deterioration was generalized, most of the fall was explained by Germany. We expect the trough in Eurozone GDP growth to be reached in Q1 2020 (0% to +0.1% q/q) on the back of adverse effects of U.S. protectionist measures on Europe (punitive tariffs on Airbus, 10% import tariff on car imports) as well as higher volatility from the U.S.-China trade dispute and a negative impact from adjustments in the high level of inventories. The ratio of inventories to new orders rebounded in September (1.15) and is now at its highest since 2011. Overall, Eurozone GDP growth is forecast at a meager +1% in 2020. While downside risks remain high, a full-blown recession should be avoided thanks to a resilient consumer on the back of disposable income and low interest rates, which will prevent the services and construction sectors from going into contractionary territory.
