After the ECB’s December meeting, president Mario Draghi stepped up to speak to the press having just cut the bank’s deposit rate by just 0.1%, disappointing the markets.
At that point, things in Europe weren’t looking too bad. As a note from Credit Suisse analysts led by Neville Hill released on Friday puts it:
A broad range of cyclical indicators — business and consumer confidence, PMIs — were relatively high, and rising. Corporate spending plans were picking up. Consumer spending, thanks to the boost to real incomes from lower oil prices and an improving labour market, was buoyant. Credit growth to the real economy was steadily improving. And although the ECB had to revise down its inflation forecasts on the back of a lower oil price, core inflation had risen through the course of last year to 1.0% by Q4.
Sounds pretty good right? Well three months later, as Credit Suisse puts it: “That’s all changed.” To put it more eloquently: “The economic dataset facing the ECB is materially different” to how it was in December.
In Credit Suisse’s preview of the next week’s ECB meeting, part of its weekly “Playbook” note, the bank uses a whole heap of charts to show just how much things have changed for the worse in Europe since December, and generally how worrying the European economic situation is right now. Here are four of the best:
The chart above shows that both service sector and manufacturing PMIs — a measure of growth or contraction — have slipped since December, getting closer to the 50 mark, which signals stagnation.
As Credit Suisse puts it: “Business confidence and activity indicators have weakened since the start of the year, as has consumer confidence.”
Next up, there’s this:
Here’s CS again: “Our latest corporate spending survey suggests businesses have pared back their spending plans.”
Thirdly, we’ve seen a big tightening in the markets:
Credit Suisse says: “Financial conditions have palpably tightened. The stress in bank unsecured debt and equity prices has endangered the tailwind to growth from easing credit conditions for the real economy.”
Finally, let’s look at inflation:
Let’s hear from Credit Suisse one last time: “The ECB will need to lower its inflation forecasts again. Although oil is lower, core inflation also looks to have peaked and is now falling again.”
So there we have it, inflation has peaked, businesses don’t want to spend and are losing confidence, and liquidity is pouring out of the market. All in all, it’s a pretty bleak picture for Europe.