LIVE MARKETS-Europe's economic momentum is fading fast

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EUROPE'S ECONOMIC MOMENTUM IS FADING FAST

Economic momentum in the euro zone is fading fast. Business activity in the bloc suffered a surprise contraction in April, with the war in the Middle East sapping demand.

And there have been other indicators too. Germany, the euro zone's largest economy, has halved its 2026 GDP growth forecast to 0.5% from 1%, while ECB President Lagarde warned that the growth and inflation outlook is at risk.

Citi's euro zone economic surprise metric, which measures how economic data in the prior three months differs from consensus forecasts, is firmly in negative territory, in contrast to other major economies such as the U.S., China and the UK.

It suggests economists have been too optimistic about the euro zone's economy.

Unsurprisingly, it's the constrained flow of ships, and therefore oil & gas, through the Strait of Hormuz that is causing the economy to struggle.

"Every additional day of disruption shifts the balance of risk towards higher-for-longer energy prices and, eventually, demand destruction," write Barclays equity strategists in a note.

The bigger cost of the war for the euro zone pushed the investment bank to turn underweight Europe versus the U.S. earlier this month, and reiterate their caution on the consumer.

Yet, they don't believe it's all bad.

"We see the war reinforcing the need to accelerate investments in strategic autonomy, which we think remains a compelling medium term investment theme."

(Samuel Indyk)

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