Euro-NowNat update: still signaling a trough in Q2 2020

Th e PMIs strongly increase d in June signaling a strong pick-up in economic activity in the euro area at the end of Q2 . At the same time , other data published over the last four weeks show how big the damage of the containment measures has been. Consequently, o ur nowcasting model Euro-NowNat has significantly revised down its forecasts for Q2 euro area growth to - 8 % 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 slightly revised up to - 0.8 % (after - 1.3 % in last month estimate) foreseeing a relatively faster normalization of the outlook. As expected, Euro-NowNat has been behind the curve in this crisis and need s hard data to get a firm grip o n the outlook in such extraordinary circumstances ( the Q1 assessment is now accurate) . This will 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 s to be treated with caution given how extraordinary the current situation is.