Eurozone: Leading indicator improvement broadening, but structural issues remain

Our Eurozone growth leading indicator has continued to recover with more corroborating evidence across other German leading indicators.

The German IFO expectations vs current conditions spread has turned more positive, while a majority of German manufacturing industries are seeing an improvement in their production expectations.

That said, structural challenges remain for the European economy, which is likely to contain the magnitude of a European recovery.

Electricity prices are down materially from the 2022 shock but are still well above pre-Covid levels. The trade weighted euro also remains a drag on export competitiveness (chart link). These factors are likely to continue to act as a structural drag amid the cyclical recovery.