Eurozone – Will manufacturing sentiment remain strong?

Since 4Q20, manufacturing sentiment within the Eurozone has stabilized at a high level, as value chains at the global level have been able to continue operating largely smoothly. In contrast, services sentiment has understandably suffered from regionally specific restriction measures.

We expect Eurozone manufacturing sentiment to remain strong in February(release on 19 Feb.).Manufacturing should continue to benefit from a healthyglobal order situation.This is mainly supported by Asian countries such as China, South Korea and Japan, which are important players in the global value chains and continue to have a comparatively good grip on the infection situation. In contrast, the ongoing restrictive measures will continue to weigh on sentiment in the services sector in February. In Germany or France parts of the service sector, and here in particular the hospitalityindustry, can expect at best hesitant opening steps in March.

Based on mobility data from Google, we expect the sharpest GDP decline in Germany in 1Q21.The decisive factor here is the fact that there was a comparatively late hard lockdown in Germany in 4Q 20 (only from mid-December).However, 4Q20 has shown in Francethat the manufacturing sector can almost compensate for the slump in consumption growth caused by the lockdown. We therefore expect a comparatively small decline in GDP of 0.9% q/q for theEurozone as a whole in 1Q21 as well. In the course of 2Q21, we expect a dynamic recovery in the services sector, thanks to warmer temperatures and substantial progress in the pace of vaccinations. This should lead in 2Q21 to GDP growth of +2.9% q/q.Towards the end of 2021 and then in 2022, projects financed by the EU Recovery Plan should support GDP growth, especially in Spain, Italy and France.

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