Germany and Italy’s woes are growing problems for Europe

There was more bad news for the eurozone yesterday as German factory orders fell by 4.2%, the biggest year-over-year drop since 2009, and Italy looked poised to cut growth its growth projections for 2019 from 1% to 0.1%

Why it matters: Both headlines signal that bad economic trends in Europe are getting worse, not better, and Europe could be headed for recession.

• “The eurozone looks set to disappoint again in 2019,” Lale Akoner, market strategist at BNY Mellon, tells Axios.

What’s happening: After what looked like a rebound in 2017 and optimism about 2018, this year she says she is expecting the region to “struggle to register” 1% growth — and even that outlook is based on a recovery in demand from China and emerging markets, and a soft Brexit.

The weakness in Italy and its impact on Italian banks could be even more troublesome, Akoner said, bringing back memories of the Greek debt crisis — but much worse given Italy’s size.

• “The linkages between European governments and their banks make us concerned, as they may lead to sovereign doom loops,” she said.
• “We worry about banks’ high exposures to their own government debt … which make them susceptible to insolvency risks.”

Be smart: Italian banks, which are already burdened with a significant amount of non-performing loans, hold more than 10% of domestic sovereign debt as a percentage of total assets, Akoner noted.

• “This could easily spill over to rest of the eurozone.”

Πηγή: axios.com