Last week brought a wave of negative economic data out of Europe.

According to the IHS Markit index, manufacturing activity across the euro zone hit 46.4 in July, down from 47.6 the month before. (A rating above 50 denotes positive expansion).

The contraction was particularly pronounced in Germany, where the IHS index dropped to 43.1 in July, substantially lower than the Reuters median forecast of 45.2 and its lowest reading since July 2012. The Purchasing Managers’ Index (PMI), which tracks services as well as manufacturing, also underperformed at 51.4 in July, below the consensus estimate of 52.3.

Barring a dramatic turnaround, Germany’s GDP will record contractions over the next two quarters.

Economic data in France also surprised on the downside. The country’s services PMI fell to 52.2 and manufacturing to 50, both dropping from June numbers and coming in well below forecasts. Just two months ago, French manufacturing was fueling hopes of a euro zone revival by surprising on the upside.

Analysis

The numbers reflect fierce economic headwinds in the top two euro zone economies. Italy – the third-largest economy – is unlikely to provide any upside respite with its projected 0.1% growth rate this year and 0.8% in 2020.

Now all eyes fall on the modern guarantor of Europe’s economic fortunes: the European Central Bank (ECB).

Having wrapped up its new asset purchases at the end of 2018, there are increasing calls for the ECB to implement new stimulus policies. This when the central bank is already maintaining a dovish line: it is still reinvesting revenues from maturing bonds in its portfolio into new bond purchases and has provided strong guarantees that it will maintain its rock-bottom interest rates for the foreseeable future.