The euro-zone has shifted down a gear but has not (yet) gone into reverse. Italy probably experienced a technical recession last year and Germany only narrowly avoided one. More importantly, the breadth of the downturn, which affected all major countries and most industries, means it cannot be dismissed as a minor local or sectoral difficulty. Instead, it seems to result from fading household consumption growth and, to a less extent, slower demand in China and the UK. Declining business confidence, partly due to the US-China trade war and the risk of a disorderly Brexit, is an additional headwind. With no convincing evidence that core inflation is set to rise, the ECB will have to acknowledge that economic risks have increased sharply when it meets again next week.
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