Whether you are watching GDP or Industrial Production, one thing is clear: Europe’s economy is on the back side of the business cycle. The question is, how long will it last?
The leading indicators are giving very strong signals that Europe as a whole will be on the back side of the business cycle through at least the near term. However, the leading indicators we use at ITR are sending mixed signals as to whether the downturn will last through the rest of the year.
Just as the US' S&P 500 rose early this year, Europe's financial indicators — the FTSE 100 and the DAX — have been strong in recent months. These indicators may be suggesting that Europe will begin to recover in the latter months of this year.
Some of the more traditional indicators, such as the G7 Leading Indicator and the Europe Manufacturing Purchasing Managers Index, are suggesting the economy could slide further down into at least the first quarter of 2020.
We are watching these indicators closely, as they, along with the others in our collection, shape a more definitive outlook for when Europe’s economy will reach a low. In the meantime, there are a few key takeaways:
- The divergence in indicators suggests that the manufacturing sector will bear more pain during 2019 than the financial sector or even the retail sector.
- If your firm aligns closely with the macroeconomy, it will likely be on the back side of the business cycle into at least the fourth quarter of this year.
Having a system of leading indicators that pertain specifically to your business will provide you greater insights into your timing, thus enhancing your ability to plan for the start of next year. Now is the time to start preparing for 2020. We suggest that you invest in your business today so you can be ready for a busier economic climate a year from now. Step forward with confidence while your competitors grow hesitant and take a step back, and you will be ahead of your competition.
Director of Economics