Euro-NowNat update: signaling a trough in Q2 2020

After reaching their lowest value in April, euro area PMIs rebound ed in May signaling a gradual recovery of economic activity. O ur nowcasting model Euro-NowNat has slightly revised down its forecasts for the euro area growth to -3.5% in Q2 2020 (which is still significantly higher than our judgmental forecast of -16%) . The relative improvement of the incoming data is reflect ed in the forecast for Q3 : sequential growth has been significantly revised up to -1.3% (after - 3.5% in last month estimate) foreseeing a relatively faster normalization of the outlook. As expected, Euro-NowNat significantly underestimated the economic damage done by the confinement measures in Q1 2020. We would stress that it should remain the case in the following quarters as such measures are unprecedented and therefore hard to “understand” for our model. The model probably also underestimates the massive policy action put in place to stabilize the economy and to prepare the rebound in activity. Thus, our model (and other models relying on past data) need to be treated with caution given how extraordinary the current situation is.