BBVA Research - Global Economic Watch December 2018 / 1 Eurozone Economic Watch December 2018
Eurozone GDP growth still slows gradually, but high uncertainty could take its toll GDP growth could grow by around 0.4% QoQ in 4Q18 as one-off factors ease, but lower global demand and high uncertainty are also weighing on activity. Hard data improved in October to halt previous signs of a marked slowing, supported by the strength of domestic factors. The improvement of retail sales is driven by lower inflation and higher wages, while the strong recovery of capital goods production suggests that investment growth should continue in coming quarters. On the other hand, exports edged up again in October to maintain the upward trend so far this year, but failing to support activity as in the last two years. A further worsening of confidence has extended to the service sector, as high and protracted uncertainty could be weighing on spending, although the PMIs fall in December has been exacerbated by protests in France and still weak demand for autos. This contrasts with a broadly steady composite indicator in Germany and improving confidence in Spain, but more worrying signs stem from the weakness in Italy. Beyond recent volatility, the Eurozone recovery seems to loose steam gradually, putting a slight downward bias to our growth forecast of 2% in 2018 and 1.7% in 2019. The sharp fall of oil Brent will shape inflation down in coming months clearly below the ECB s target in early next year, while core inflation is likely to trend upward very gradually. The ECB ends net asset purchases this month, but remains cautious about the future.
3Q17 4Q17 2Q18 3Q17 4Q17 2Q18 3Q17 4Q17 2Q18 3Q17 4Q17 2Q18 Germany France Italy Spain BBVA Research - Global Economic Watch December 2018 / 3 Larger-than-expected slowdown in driven by one-off effects in Germany, but also by the Italian GDP contraction Regulatory changes in the car industry partly explain the fall in output, especially in Germany, but also lower global demand. In contrast, growth rebounded in France and remained steady in Spain. GDP and expenditure contribution by country (%QoQ, pp) 1.5% % 0.5% % -0.5% -% -1.5% 20% 15% 10% 5% 0% -5% -10% Germany France Italy Spain Diff. GDP relative to 2008 Final Consumption GFCF Inventories Net Exports Diff. GDP level relative to 2008 GDP q/q % change Euro GDP QoQ
4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 2Q18 4Q18 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 BBVA Research - Global Economic Watch December 2018 / 4 GDP growth around 0.4% QoQ in 4Q18, returning to the previous moderate pace Although temporary factors are fading, there are more enduring drivers (lower global demand and confidence) preventing the rebound in activity. French riots could have also weighed on growth. GDP, contribution by components (%, QoQ) GDP and MICA forecasts (%, QoQ) 2.5 1.5 0.5-0.5 0.8 0.4 0.2-1.5 Private consumption GFCF Net Exports Public consumption Inventories Real GDP CI 20% CI 40% CI 60% Observed
Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Nov-12 May-13 Nov-13 May-14 Nov-14 May-15 Nov-15 May-16 Nov-16 May-17 Nov-17 May-18 BBVA Research - Global Economic Watch December 2018 / 5 Further worsening of confidence extended to the service sector, as high and protracted uncertainty could end weighing on spending PMIs extended their downward trend in December, mainly due to the sharp fall in services confidence, while the deterioration in manufacturing seems to hold back. PMI and GDP (level, %QoQ) EC confidence survey (level) 62 60 58 56 54 52 50 PMIs level GDP (% QoQ) 0.9 0.8 0.7 0.5 0.4 0.3 0.2 0.1 120 115 110 105 100 95 90 85 80 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% -30% Real GDP (%QoQ) Services PMI PMI Manufacturing PMI ESI (lhs) Consumer (rhs) Industrial (rhs) Services (rhs)
Dec-18 Dec-18 Dec-18 Dec-18 PMI Survey (level) BBVA Research - Global Economic Watch December 2018 / 6 The PMIs fall in December is likely exacerbated by protests in France and still weak demand for autos The sharp fall in French PMIs contrasts with a broadly steady composite indicator in Germany and improving confidence in Spain. More worrying signs stem from the weakness in Italy. 58 5 53 48 2Q18 4Q18 2Q18 4Q18 2Q18 4Q18 2Q18 4Q18 Confidence Germany levels adjust from France high levels, reflecting a broad Italy divergence between Spain the manufacturing and the Composite services PMIsector Manufacturing and also mask PMI some Services differences PMI among countries. Overall, confidence readings are still consistent with a steady quarterly growth in 3Q but provide a weak start of Q4. Source: Markit and BBVA Research
Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Nov-14 Feb-15 May-15 Aug-15 Nov-15 Feb-16 May-16 Aug-16 Nov-16 Feb-17 May-17 Aug-17 Nov-17 Feb-18 May-18 Aug-18 BBVA Research - Global Economic Watch December 2018 / 7 Industrial production grew in October to offset previous declines, supported by strong growth in capital goods output Strong capital output along with increasing production in both intermediate and durable consumer goods point to ongoing investment recovery in coming quarters amid declining idle capacity. Industrial production (Level, % QoQ) IP capital equipment, investment in M&E and capacity utilization (%QoQ; %) 110 IP (level) 2.5 6 Inv. M&E; IP 85 108 2.0 5 4 84 106 1.5 3 83 104 2 1 82 102 0.5 0 81-1 80 100-2 79 98-0.5-3 Capacity utilization (%) IP (% QoQ) -4 78 96 - IP (2015=100) GFCF: M&E (%QoQ) Capacity Utilisation (%) IP Capital (%QoQ)
Oct-14 Feb-15 Jun-15 Oct-15 Feb-16 Jun-16 Oct-16 Feb-17 Jun-17 Oct-17 Feb-18 Jun-18 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 2Q18 BBVA Research - Global Economic Watch December 2018 / 8 Exports edged up again in October to maintain the upward trend so far this year, although failing to support activity as in the last two years Net exports are likely to weigh on growth again in coming quarters due to larger increase of imports supported by the strength of domestic demand. Trade balance ( bn; %GDP) Exports by destination (%YoY; pp) 200 190 180 170 160 150 140 Exports, imports 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.8 0.8 0.8 0.7 0.7 0.5 Trade Balance (%GDP) 0.9 0.8 0.7 0.5 0.4 0.3 0.2 0.1 6 4 2 0-2 -4-6 Exports Imports Trade Balance (% GDP) Intra EU United States China Asia Ex. China LatAm RoW Total Exports
Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 BBVA Research - Global Economic Watch December 2018 / 9 The unemployment rate remained broadly unchanged in October Despite significant differences across countries, the tightening of the labour market should result in upward wage pressures in coming quarters. Unemployment rate by country (%) Annual unemployment change by gender and age (millions) 18% 16% 14% 12% 10% 8% 6% 4% 2% -0.2-0.4 - -0.8 - -1.2-1.4-1.6-1.8 0% Oct-17 Sep-18 Eurozone Germany France Italy Spain Women 25-74Y Men 25-74Y Men < 25Y Women < 25Y Total
Nov-06 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 May-18 Jul-18 Sep-18 BBVA Research - Global Economic Watch December 2018 / 10 Slowing headline inflation driven by lower oil prices and steady core inflation at low levels The sharp fall of oil Brent will shape inflation down in coming months clearly below the ECB s target in early next year, while core inflation is likely to trend upward very gradually. Inflation contribution of components (%YoY, pp) Core and trimmed-mean inflation (%YoY; pp) 2.5 3.5 2.0 1.5 3.0 2.5 0.5 2.0-0.5 1.5 - -1.5 0.5 Services Processed Food Unprocessed Food Non-energy industrial goods Energy HICP (% y/y) Trimmed mean inflation Core inflation
Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 BBVA Research - Global Economic Watch December 2018 / 11 Retail trade increased in October to halt the markedly slowing in recent quarters Lower inflation and higher wages will continue to support households spending, although likely at a more moderate pace due to worsening consumers confidence. Retail sales and consumer confidence (%QoQ, level) Retail sales and total wage bill (%YoY; pp) 1.4 1.2 0.8 0.4 0.2-0.2-0.4 4 Retail Sales (% QoQ) 1.2 4.0 0.9 2.0 3 0.8 0.8 0.8 2 0.7-2.0 1 0.4 0.4 0.4-4.0 0.3-6.0 0 0.1 0.1-8.0-1 -0.2-0.1-1 -2 Consumer -12.0 Confidence -14.0-3 Retail Sales (%Q/Q) Consumer Confidence Real compensation Total wage bill Employees Retail sales
BBVA Research - Global Economic Watch December 2018 / 12 Eurozone Economic Watch December 2018
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