EZ consumer confidence likely to be hurt by Paris attacks; ECB easing now almost certain

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Nov 16, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Mumbai) - Friday was an eventful day for the euro zone. Earlier on Friday the Eurostat reported Eurozone GDP expanded by 0.3% in the third quarter. Year-on-year growth came out at 1.6%.Consumers lifted the overall sentiment. Fall in energy prices and in unemployment rate increased disposable income thereby supporting consumption, which can be considered to be the single most important driver of growth. Only by stimulating demand can the ECB aim to end its deflation. Increasing consumer confidence and easy financing condition boosted the construction sector, which was again a positive development.

    In the night, six mass shootings in central Paris and three separate suicide bombings near the Stade de France rocked France killing 129 people and wounding hundred others.

    Impact of the Paris attack on Euro zone economy

    Attacks in Paris will raise further the uncertainty over the outlook for the euro zone economy. In the short term, tourism sector in France and other countries in Europe will be hit. The attack will discourage travellers from visiting Paris or other major cities. This decline in tourism in Europe could further weaken the euro. The euro was noted to have fallen even before the attacks on expectations the ECB will step up monetary easing in December. Euro had previously reacted to the possibility that the central bank would further slash its deposit rate and buy more assets under its quantitative easing programme.

    Consumer goods or tourism, notably the luxury industry will be hit, particularly with the holiday season round the corner. The attack is a blow to consumers who might now choose to hold their purses tight. Consumer confidence is likely to take beating post the attacks. The ECB is fighting to improve inflation in the region and any event that hits demand spells bad news for the central bank.

    It can be said now that the Paris attacks will mark the end to border free Europe. If the so-called ‘Schengen’ border-free zone collapses as a consequence of the attack, then that could hit both cross-border trade as well as the trucking business.

    Though the attacks cannot probably hinder economic recovery in France and the Eurozone, the equities can be expected to be hit this week. It is unlikely Paris attacks will cause Europe to experience recession. As for the longer-term economic outlook, it will depend on political decisions taken in response to the attacks.

    Paris attacks increase chances of easing by the ECB

    The Paris attacks have raised the chances that the ECB will announce new stimulus measures in December to fight deflationary concerns that might rise with a dip in consumer confidence post the attack. Also, the GDP figures reported earlier on Friday was not strong enough to convince the central bank to halt easing. The central bank may choose to both extend its stimulus programme to September 2017 and expand it bond buying to EUR 70 billion.
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