Main Economic & Financial Indicators Eurozone

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1 Main Economic & Financial Indicators Eurozone 30 NOVEMBER 2015 AKIKO DARVELL ASSOCIATE ECONOMIST ECONOMIC RESEARCH OFFICE (LONDON) T +44(0) E akiko.darvell@uk.mufg.jp The Bank of TokyoMitsubishi UFJ, Ltd. A member of MUFG, a global financial group Overview The Eurozone s economic recovery continues gradually, despite the fact that the pace of real GDP growth rate decelerated to % q/q in Q3 from % q/q in Q2. While a breakdown of the expenditure side of this figure has not yet been released, acceleration in the pace of retail sales growth from % q/q in Q2 to % q/q in Q3 suggests that the economic growth was supported by private consumption. On the other hand, it is likely that net exports which boosted growth of the economy on the back of an expansion of exports due to the depreciated euro in Q2 put downward pressure on overall growth. Examination of the trade of Eurozone goods and services (according to balance of payment data) reveals that imports gradually grew in Q3, but exports decreased partly owing to sluggish demand from emerging countries such as China and Russia. As a result, the trade balance surplus is comparatively smaller than the previous quarter. Looking forward, an improvement in households purchasing power owing to the lower unemployment rate and low inflation is thought to continually support consumption. Meanwhile, though the downside risk to exports from China and Russia remains, euro depreciation since midoctober is likely to be a tailwind, supporting the economy s gradual recovery. (Q/Q, %) Real GDP and contributions (year) Inventory and others Net Export Gross Fixed Capital Formation Government expenditure Private consumption GDP (Source) Macrobond 1

2 Output Industrial production was down % m/m in September, continuing its negative growth for a second month. However, the Eurozone s Purchasing Managers Index (PMI) for the manufacturing sector rose to 5, returning to the same level as April New orders were pushed up by an increase in export orders, indicating a possibility that production will pick up in coming months. Consumption, Labour Markets, Consumer Confidence September s retail sales decreased % m/m. Consumer confidence maintains a level which exceeds the longterm average, but it has been softening since April due to worsening of the refugee crisis. Nevertheless, it recovered to 6.0 (flash estimate) in November, a level last seen in June. While exact details of this survey have not yet been published, it is thought that the reasons for the increase in confidence are a decrease in unemployment concerns and an improvement of the economic outlook due to a rise in expectations of additional monetary easing by the European Central Bank (ECB). However, the majority of data for November s survey was accumulated before the terrorist attacks in Paris on Nov 13 th ; therefore, the extent to which the attacks affect consumer confidence should be monitored. Nevertheless, while it is gradual, the improvement of the employment and wages situation is likely to continue and the environment surrounding households will be moderately improved by a continuation of low inflation which will maintain resilient consumption growth. Prices Consumer Confidence Longterm average ( ) 30 Consumer Confidence 0 Inflation expectation (RHS) (Source) Macrobond (Year) October s inflation rate emerged from negative territory, up % y/y. The main cause was a slower pace in the fall of energy prices. The core inflation rate rose from % y/y in September to % y/y. In the meeting minutes of the ECB s monetary policy meeting held on 22 nd October, the bank suggested that lower oil prices and the strengthening of the euro exchange rate since May has pushed the inflation outlook downward from its September prediction (+% y/y in 2015, +% y/y in 2016). As a result, the anticipated timing of inflation normalising towards 2% was likely to be pushed back again, it added

3 Interest Rates, Foreign Exchange Markets Policy Rate: In the meeting minutes (announced 19 th November) from the ECB policy meeting on 22 nd October, the Bank said that deflation could not be fully excluded as a tail risk and it will carefully examine the degree of monetary easing policies, indicating the possibility of implementing additional monetary easing measures such cutting the Bank s deposit rate and expanding quantitative easing. Market rate (October): Germany s 10year bond yields started October at 5%. Yields continued to fall due to an increase in concerns over the prospects of the global economy in addition to a suggestion by Mario Draghi, president of the ECB, of an implementation of additional monetary at December s policy meeting. On 28 th, yields dropped to 4%, their lowest level since May. Subsequently, the US Fed s indication on 28 th of a possible rate hike in December caused yields to rise to 9% on 6 th November, their highest level since September. However, yields fell again owing to heightened expectations of additional monetary easing by the ECB; they currently remain close to %. Interest rate (%) (%) 0 Policy Rate M EURIBOR 0 10year German bonds yield (RHS) 5 3/15 4/15 5/15 6/15 7/15 8/15 9/15 10/15 11/15 (Source) Macrobond (month/year) Foreign Exchange Market (October): The euro exchange rate started October at US$15. Until midoctober, dollar selling continued due to a fallback in market expectations of a US Fed rate hike, and the euro rose to US$4. However, the euro then fell due to suggestions from the ECB on 22 nd that they would implement additional easing and the US Fed referring to a possibility of a rate hike in December. At the start of November, expectations of a US Fed rate hike increased again due to robust growth of US employment figures. Adding to this, the content of the ECB s policy meeting minutes indicates that additional monetary easing by the ECB seems even more likely, sending the euro down to US$58 against the dollar on 25 th, its lowest level since April (EUR/USD) Foreign Exchange EUR/USD EUR/JPY(RHS) (EUR/JPY) /15 4/15 5/15 6/15 7/15 8/15 9/15 10/15 11/15 (month/year) (Source) Macrobond 3

4 1. Annual and quarterly data Real GDP* Industrial Production * ** /Q2 Q3 Q4 15/Q1 Q2 Q3 Total 2.4 (excl. construction) Manufacturing 2.6 Construction Retail sales * 2.3 Producer prices Harmonised index of consumer prices (HICP) Employment Unemployment * Unit labour costs * Compensation per employee * Labour Productivity * Markit Purchasing Manager's Indices (PMI) Business and consumer surveys (confidence) * Exports Imports Manufacturing Core inflation (y/y, %) % of labour force (y/y, %) (y/y, %) (y/y, %) Manufacturing sector Service sector Economic sentiment Manufacturing Construction Services Retail trade Consumer (EUR bn) (compared with previous period, %) (EUR bn) (compared with previous period, %) 2.4 Trade balance (EUR bn) Current account (EUR bn) Foreign reserves End period (USD bn ) Money supply(m3) End period (y/y, %) Refinance rates 3month money market rates 10y govt. bond yields (Germany) USD/EUR exchange rates GBP/EUR exchange rates YEN/EUR exchange rates Note : Sources: ECB Monthly Bulletin etc. Domestic demand Contribution Net exports Contribution End period (%) The upper line is the quarterly percentage change, the lower line is the annual percentage change unless otherwise indicated. * seasonally adjusted ** adjusted for variations in the number of working days PMI indices show that above 50 indicates expansion, below 50 indicates contraction. 2.9 Unemployment rate=unemployed total/total labour force. Interest rates and foreign exchange rates are period averages. 4

5 2. Monthly data 03/ Real GDP * Domestic demand Contributions Net exports Contributions No figures on monthly basis Industrial Production * ** Retail sales * Producer's prices Harmonised index of consumer prices (HICP) Employment Unemployment Unit labour cost * Compensation per employee* Labour Productivity * Markit Purchasing Manager's Indices (PMI) Business and consumer surveys (confidence) * Exports Imports (y/y, %) (y/y, %) (y/y, %) (y/y, %) Trade balance (EUR bn) Current account (EUR bn) Foreign reserves End period (USD bn) Money supply(m3) End period (y/y, %) Refinance rate End of period (%) month money market rates y govt. bond yields (Germany) USD/EUR exchange rates GBP/EUR exchange rates YEN/EUR exchange rates Note : The upper line is the monthly percentage change, the lower line is the annual percentage change unless otherwise indicated. * seasonally adjusted ** adjusted for variations in the number of working days Unemployment rate=unemployed total/total labour force. PMI indices show that above 50 indicates expansion, below 50 indicates contraction. Interest rates and foreign exchange rates are period averages. Sources: ECB Monthly Bulletin etc. Total (excl.construction) Total Manufacturing Construction Manufacturing Core inflation % of labour force Manufacturing sector Service sector Economic sentiment Manufacturing Construction Services Retail trade Consumer (EUR bn) (m/m, %) (EUR bn) (m/m, %) No figures on monthly basis No figures on monthly basis 5

6 3. Annual and quarterly GDP Growth and Inflation rates /Q2 Q3 Q4 15/Q1 Q2 Q3 Belgium Germany Spain France Ireland Italy Luxembourg Netherlands Austria Portugal Real GDP* 4.0 Finland Greece Slovenia Cyprus Malta Slovakia Estonia Latvia Lithuania Belgium Germany Spain France Ireland Italy Luxembourg Netherlands Austria Harmonised 2.6 Index of 2.0 Portugal Consumer Prices (HICP) Finland Greece Slovenia Cyprus Malta Slovakia Estonia Latvia Lithuania Note: *The upper line is the quarterly percentage change, the lower line is the annual percentage change unless otherwise indicated. *GDP growth: seasonally and workingday adjusted except Ireland, Portugal and Slovakia (seasonally adjusted) Sources: ECB Monthly Bulletin etc. 6

7 4. Monthly HICP and Industrial Production Harmonised Index of Consumer Prices (HICP) Industrial Production upper line* lower line** Belgium Germany Spain France Ireland Italy Luxembourg Netherlands Austria Portugal Finland Greece Slovenia Cyprus Malta Slovakia Estonia Latvia Lithuania Belgium Germany Spain France Ireland Italy Luxembourg Netherlands Austria Portugal Finland Greece Slovenia Cyprus Malta Slovakia Estonia Latvia Lithuania 02/ Note: The upper line is the monthly percentage change, the lower line is the annual percentage change. * Seasonally adjusted, ** Working day adjusted 7

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