Euro area sees nascent recovery

As at 23 January 2024

The underperformance of the European economy has been a persistent theme over the past several years. Relative to the US, Europe has a lower ‘trend’ growth rate, meaning that it is expected to grow more slowly over time. The region also saw a much sharper contraction during the Covid-19 crisis and had more acute exposure to the 2022 energy price shock. This left the Euro Area economy just 3% larger than its end 2019 level, compared to over 7% for the US, as of the end of Q3 2023¹.

Given the lags in quarterly GDP data, as well as the volatility of individual data series, at Fulcrum, we rely on a Bayesian Dynamic Factor Model to gauge the near-term health of major economies. This model uses state-of-the-art methods to arrive at a near real-time assessment of economic activity, and several of its key features were incorporated in the New York Fed’s revamped nowcasting model.

Source: Fulcrum Asset Management

Note: The thick blue line represents the model’s median projection for the current annualised growth rate, whilst the dark and light blue shaded areas show the 68% and 90% confidence intervals, respectively. The dashed black line shows the model’s estimate of the long-term trend growth rate.

The figure shows our real-time assessment of the Euro Area economy over the past 12 months. We see that over the second half of last year, the currency bloc was hovering between stagnation and contraction. The proximate cause of this was moribund consumer spending, dire business sentiment and weakness in the German manufacturing sector. Since the start of 2024 however, there has been a moderate but noticeable uptick in estimated activity growth to 0.4% annualised, marking its fastest rate since May 2023. The cause of this was an improvement in labour market data – which in general has been robust despite weak output overall – as well as signs of a rebound in business confidence.

Going into 2024, the state of the Euro Area economy will be a crucial factor for policymakers. The weakness until now had concerned some officials at the European Central Bank (ECB) and contributed to market conviction that the ECB would soon embark on significant interest rate cuts. If the recovery continues, which is possible given the recent acceleration in real income growth and large stock of household savings, it could prompt a shift in the ECB’s near-term policy path.

1. Source: Haver Analytics

This content is provided for informational purposes and is directed at professional as defined in Directive 2011/61/EU (AIFMD) and Directive 2014/65/EU (MiFID II) Annex II Section I or Section II or an investor with an equivalent status as defined by your local jurisdiction. Fulcrum Asset Management LLP (“Fulcrum”) does not produce independent Investment Research and any content disseminated is not prepared in accordance with legal requirements designed to promote the independence of investment research and as such should be deemed as marketing communications.  This document is also considered to be a minor non-monetary (‘MNMB’) benefit under Directive 2014/65/EU on Markets in Financial Instruments Directive (‘MiFID II’) which transposed into UK domestic law under the Financial Services and Markets Act 2000 (as amended). Fulcrum defines MNMBs as documentation relating to a financial instrument or an investment service which is generic in nature and may be simultaneously made available to any investment firm wishing to receive it or to the general public. The following information may have been disseminated in conferences, seminars and other training events on the benefits and features of a specific financial instrument or an investment service provided by Fulcrum.Any views and opinions expressed are for informational and/or similarly educational purposes only and are a reflection of the author’s best judgment, based upon information available at the time obtained from sources believed to be reliable and providing information in good faith, but no responsibility is accepted for any errors or omissions. Charts and graphs provided herein are for illustrative purposes only. The information contained herein is only as current as of the date indicated, and may be superseded by subsequent market events or for other reasons. Some of the statements may be forward-looking statements or statements of future expectations based on the currently available information. Accordingly, such statements are subject to risks and uncertainties. For example, factors such as the development of macroeconomic conditions, future market conditions, unusual catastrophic loss events, changes in the capital markets and other circumstances may cause the actual events or results to be materially different from those anticipated by such statements. In no case whatsoever will Fulcrum be liable to anyone for any decision made or action taken in conjunction with the information and/or statements in this press release or for any related damages.  Reproduction of this material in whole or in part is strictly prohibited without prior written permission of Fulcrum Copyright © Fulcrum Asset Management LLP 2024. All rights reserved.

FC410 230124

Share this article

Share on facebook
Share on twitter
Share on linkedin
Share on whatsapp
Share on email
Your privacy

Cookies are data files that are stored on your computer or other smart device by a website’s server. Each cookie is unique to your web browser. It will contain some anonymous information such as a unique identifier, website’s domain name, and some digits and numbers. Cookies are useful as they allow us to recognise a user’s device and its preferences in order to ensure that our website works properly. By continuing to use this website, you consent to the use of our cookies.


You can find out the different types of cookies used on our website in our Cookies and Data Privacy Policies.

Necessary cookies