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Risk of a return to recession grows

Developments over the past month suggest that there is a distinct possibility that the eurozone could soon slip back into recession. In particular, the ECB composite PMI now points to outright falls in GDP. Meanwhile, a steep drop in the EC Economic Sentiment Indicator in August means that the index is consistent with a sharp slowdown in annual euro-zone GDP growth. August’s plunge in consumer confidence also confirms that consumers are unlikely to take over the reins from the external sector. Given all this, it is perhaps no surprise that markets expect the ECB to cut interest rates by around the turn of the year.

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