Further signs of a slowdown

Further falls in euro-zone leading indicators and the first hard data for Q2 suggest that the economic recovery may have passed its peak. After three consecutive falls, the EC’s Economic Sentiment Indicator is consistent with annual GDP growth remaining close to its current level of about 2.5% in the near term. (See Chart.) With rising inflation, slowing wage growth, and the spreading fiscal squeeze hitting disposable incomes, and further monetary policy tightening around the corner, the consumer outlook certainly remains grim. And as the export boom continues to lose a bit of steam and lagged effects of the euro’s strength hit home, the uncompetitive peripheral economies will be hit particularly sharply, making them ever more vulnerable to ongoing debt concerns.