Greg Fuzesi joins Nora Szentivanyi to discuss the recent underpeformance in European growth and why we could see an improvement from here. Euro area growth has been stagnating over the past year and is running well below its estimated potential. One key factor behind this weakness is a striking turn towards caution on the part of European consumers evident in a household saving rate that has risen well above its pre-pandemic levels and stalling consumer spending.

Our view that the Euro area avoids a recession––we look for a 0.5% GDP gain this quarter and 0.6% in 2024­­––is predicated on an improvement in consumer spending in response to falling inflation, continued real income gains, and healthy balance sheets. However, the risk is that this year’s excessive consumer caution leads to a pullback in hiring.  While the manufacturing sector has likely done better than often claimed, it is hard to ignore the weakness in the latest PMIs, which we still believe are a reliable indicator of the underlying growth trend in the Euro area. As a result, risks are on the downside but the case for a consumer-led improvement remains in place.

This podcast was recorded on 15 November 2023.

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