September economic sentiment indices released by the EU Commission confirm the peak of the business cycle was reached around the end of last year and the downturn of the business cycle is taking place. This phase can last up to two years, and at least for the first year inflation is likely to rise. The slowdown is driven by weakening exports and rising households’ preferences for savings. Low interest rates at this juncture are almost counterproductive for demand, as they are fuelling a rise in the cost of living, especially via housing costs.
- The peak of the business cycle is evidently behind us
- Consensus and ECB GDP forecasts appear high and recession in 2020 is very likely
- The pace of the slowdown is cushioned by high backlog of production
- Hiring appetite has moderated, particularly in the industrial sector…
- …but remains consistent with falling unemployment rates for the next 10-12 months
- Household sector confidence has peaked, inflation and unemployment concerns rising.