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EUR: Euro area business cycle strong despite global jitters – Nomura

FXStreet (Delhi) – Research Team at Nomura, notes that the euro area business cycle remained in Expansion for the fourth consecutive month in October and the implied growth rate is at its strongest since July 2011 despite a marginal slowdown in momentum.

Key Quotes

“Galileo continues to suggest that a weaker global growth environment has had a limited impact on the pace of recovery so far. Furthermore, our leading indicator continues to assign a high probability (85%) of the region staying in Expansion in November albeit lower than 95% in October.”

“Momentum in external demand continued to slow at the euro area level (and in Germany). While the external sector remains a downside risk, region-wide export expectations remained above-trend and actually improved in some countries (e.g., Italy and Spain). Domestic demand developments remain above-trend at the euro area level with momentum remaining positive, albeit a touch softer than last month.”

Sustained business cycle expansion is unlikely to prevent further policy easing from the ECB, in our view. We continue to expect the next round of easing to be announced on 3 December and focussed on an extension of asset purchases for at least another 6 months (i.e., until at least “end-March 2017, or beyond”), if not longer, as inflation takes longer to return to price stability than first estimated early this year.”

Growth ranking: The country ranking in terms of implied growth rates was little changed in October, with the UK and Spain remaining among the 3 fastest-growing countries, although implied growth in Spain now exceeds that of the UK. Finland and Greece continue to exhibit the slowest pace of implied growth in the region.”

Momentum ranking: 9 out of 14 countries showed momentum gains in October (unchanged from September). The number of countries experiencing negative momentum edged up to 4 (from 3 previously). Momentum was strongest in Greece and Cyprus, while momentum was weakest (and declined) in The Netherlands and the UK.”

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