German Economic Growth Slows; Eurozone Faces Challenges Amidst Global Trends

According to the IMK institute's latest forecast, Germany's economy is expected to experience slower growth in the coming year, primarily due to a lack of positive momentum towards the end of the current year. The institute, affiliated with trade unions, has projected a modest 0.7% growth rate for Europe's largest economy in 2024. This prediction is notably more pessimistic than their previous spring forecast of 1.2% growth and more conservative than the forecasts of other German economic institutions, such as Ifo, which anticipates growth of 1.4%.

Notably, five economic institutes have predicted that Germany's Gross Domestic Product (GDP) will contract by 0.6% in 2023. In terms of inflation, it is expected to remain high at 6.1% this year but is projected to decrease to 2.6% next year.

The IMK's analysis suggests that several factors are contributing to the sluggish economic performance. The German economy has been weakened by energy price shocks, and this has hindered its ability to gain momentum. Furthermore, the presence of high interest rates and a subdued global economy has put brakes on economic expansion.

While there is some hope for a recovery in private consumption, it is expected to materialize only towards the end of the third quarter due to declining inflation and stronger wage increases. However, the IMK notes that this positive development may come too late to entirely prevent a recession in 2023, although it may mitigate its severity to some extent.

In a related development, sentiment among German exporters has worsened in September, reaching its lowest point since May 2020. According to a survey by the Ifo economic institute, the institute's export expectations indicator fell to minus 11.3 points in September, continuing a five-month consecutive decline from minus 6.5 points in August.

The decline in foreign business is widespread across sectors, except for manufacturers of leather goods, furniture, and some companies in the food industry, according to the Ifo's statement. Even the hopes for growth in the German chemical industry in September did not materialize, and car manufacturers have also become more skeptical.

In a separate international context, data compiled for Reuters indicates a shift in consumer habits among French consumers. They are purchasing fewer personal hygiene and household products, including items like tampons and laundry detergent. This change in behavior is driven by surging prices of products made by major brands like P&G and Unilever. It's expected that this shift could become a new battleground for retailers, politicians, and consumer goods manufacturers who have been grappling with food price issues for several months.

President Emmanuel Macron's government in France is set to address grocery inflation in its budget, with plans to advance annual negotiations between food producers and supermarkets. The hope is that price cuts can take effect earlier, on January 15, as opposed to the usual date of March 1.

On the global financial front, the dollar index has reached a 10-month high. This strong performance of the dollar is attributed to elevated Treasury yields, reflecting expectations of higher U.S. interest rates. The Federal Reserve has indicated its willingness to raise rates further and maintain them at elevated levels to address inflation concerns.

Despite some economic headwinds, the U.S. economy has shown resilience, with robust economic data and home price growth. However, U.S. consumer confidence has dipped for the second consecutive month, largely due to worries about higher prices and concerns about the political environment. The potential for a government shutdown has also contributed to this decline in consumer confidence.

Nevertheless, consumers appear to remain committed to spending, particularly on big-ticket items like motor vehicles and appliances. While they continue to be concerned about the cost of living, their inflation expectations for the next year have remained stable at 5.7%. This spending is underpinned by a tight labor market, which has contributed to elevated wage growth. Hence, it is anticipated that the euro will persist in a bearish trajectory in this timeframe, although there may be occasional variations influenced by central bank monetary policy decisions and supplementary economic metrics. The medium-term outlook is projected to remain negatively affected by the contrasting returns between the two economic regions and the economic stagnation witnessed in the Eurozone.

Data for Technical Analysis (5H) CFD EUR/USD

Resistance : 1.0574, 1.0579, 1.0586

Support : 1.0560, 1.0555, 1.0548           

5H Outlook

Source: Investing.com

Buy/Long 1 If the support at the price range 1.0550 - 1.0560 is touched, but the support at 1.0560 cannot be broken, the TP may be set around 1.0578 and the SL around 1.0545, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 1.0574 - 1.0584, TP may be set around 1.0597 and SL around 1.0555, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 1.0574 - 1.0584 is touched, but the resistance at 1.0574 cannot be broken, the TP may be set around 1.0559 and the SL around 1.0589, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 1.0550 - 1.0560, TP may be set around 1.0540 and SL around 1.0579, or up to the risk appetite.       

Pivot Points Sep 27, 2023 03:04AM GMT

Sources: Investing 1, Investing 2