Economy weathering political risks

The euro-zone economy still seems to be weathering the effects of political upsets and uncertainty at home and abroad well. The PMI and EC survey indicators rose in November, consistent with an acceleration in GDP growth from Q3’s modest 0.3% q/q. However, the earliest hard data for Q4 paint a less positive picture and suggest that an acceleration is far from guaranteed. And there is a serious threat that rising political risk will have more adverse effects next year. Note, for example, that the increased probability of an Italian euro-zone exit as measured by the Sentix survey is not at all priced in to the bond markets.