Eurozone Economic Watch November 2017
Eurozone: improved outlook, still subdued inflation Our MICA-BBVA model for growth estimates for the moment a quarterly GDP figure of around -0.7% in, after % QoQ in. Confidence started to pick up again in November, mostly in manufacturing but also in services. Activity data showed mixed signs in September: Industrial output cooled down a bit though it still shows a positive momentum overall in 3Q. In contrast, retail sales recovered the lost ground from previous months, while employment and consumer confidence remain resilient. Both headline and core inflation eased and remain subdued in October. The headline rate is expected to decline by year end driven by the negative base effects of energy prices along with the appreciation of the euro (forecasts are kept at % in 2017 and 1.2% in 2018). Core inflation is likely to remain fairly stable and then gradually move up (unchanged forecasts at 1.1% for 2017 and 1.4% for 2018). Incoming data put a slight upward bias to our GDP growth forecasts for 2017 and 2018 (2.2% and 1.8%, respectively). The underlying growth bias comes from better than expected incoming data in Germany, while France and Italy are in line with our scenario. 2
4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 Steady GDP growth at high levels in in the Eurozone, to be repeated by year-end GDP, Contribution by Components (%QoQ, pp) 2.5 - GDP and BBVA-MICA forecasts (%QoQ) 0.8 0.4 0.2 - -0.2-0.4 Imports Change in inventories Public consumption Real GDP Exports Gross fixed capital formation Private consumption - CI 20% CI 40% CI 60% Observed Advanced GDP growth figure came out at % QoQ in, and continues to point to a robust recovery growth has been driven mainly by domestic demand MICA-BBVA suggests a GDP growth at around /0.7% in
Germany France Italy Spain Germany and Italy s GDP growth accelerated in, while it slowed down somewhat in France and Spain GDP, Contribution by components (%QoQ, pp) 2.0 12 0.8 0.8 8 4 0 - - - -4-8 -2.0-12 Germany France Italy Spain Diff. GDP level relative to 2008 Private consumption Public consumption Gross fixed capital formation Change in inventories Exports Imports Real GDP Eurozone GDP Investment seems to be the main contributor of growth in Germany during In France and Italy, GDP grew % QoQ in, and supported mostly by domestic demand Spain s growth, at 0.8% QoQ, showed a slight deceleration in
May-14 Aug-14 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 Apr-14 Jul-14 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 Confidence figures surged in November and suggest a broad-based optimism PMI and GDP (level, %QoQ) ESI and GDP (level, %YoY) 62 60 58 PMIs level GDP (% QoQ) 1.2 0.9 116 114 112 110 ESI level GDP (% YoY) 4.0 3.5 3.0 2.5 56 108 2.0 54 52 0.3 106 104 102 50 100 Real GDP (% QoQ) Manufacturing PMI PMI Services PMI Real GDP (% YoY) ESI In November, confidence levels increased across sectors, and highlighted a recovery in services and a surge in manufacturing Confidence among both businesses and consumers (according to ESI) continued to rise, while it reached the highest level since the Great Recession 5
PMI figures show increased optimism in France and Germany over so far PMI (level) 64 62 60 58 56 54 552 50 48 46 44 Oct-17 Nov-17 Oct-17 Nov-17 Oct-17 Nov-17 Oct-17 Nov-17 Germany France Italy Spain Composite PMI Manufacturing PMI Services PMI 6
Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 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 Industrial output growth remained solid in, despite some moderation in September Industrial production (level, %QoQ) 108 106 104 102 100 98 IP (level) 2.0 IP capital, investment in machinery and equipment and utilization capacity (%QoQ, %) Inv. M&E, IP 4 capital (% QoQ) 85 1.2 1.1 3 83 2 81 0.3 1 0.1 79 0-0.1 77-1 Capacity utilization - (%) IP (%) QoQ) -2 75 96 - IP (2012=100) IP (% QoQ) Investment M&E (% QoQ) Capacity Utilization (%) IP Capital (% QoQ) Industrial production moderated in September (-% MoM) after the strong surge in August s figures The production of durables and capital goods, together with high capacity utilization, point to a still favourable investment outlook 7
The increase of industrial production was widespread across countries during Industrial production (%QoQ, level) 5 4 4.8 3.8 IP (level) 114 112 3 2 1 1.1 0.7 1.4 0.9 1.8 1.3 110 108 106 104 102 0-1 IP (% QoQ) 100 98 96-2 94 Germany France Italy Spain Portugal Austria Belgium Finland Netherlands IP (% QoQ) IP (2012=100) 8
Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 Foreign trade moderated in, but soft data point to further support from external demand Trade balance ( bn, %GDP) Exports contribution by destination (%QoQ, pp) 190 185 180 175 170 165 160 155 150 145 140 Exports, Imports & Trade balance 0.8 Trade balance ( bn) Imports 0.9 Exports 0.9 0.9 0.8 Trade Balance (% GDP) 0.8 0.7 0.8 Trade balance (%GDP) 1.2 0.8 0.4 0.2 4.0 3.0 2.0 - -2.0-3.0 Other EU countries United States China Asia (ex China) LatAm Rest of world Total Exports 9
Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 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 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 Retail sales recovered somewhat in September, on the back of high and stable confidence Retail sales and consumer confidence (%QoQ, pts) Retail sales and total wage bill (%YoY) Retail Sales (% QoQ) 0.3 0.4 0.9 0-5 -10-15 4 3 2 1 0-1 - - Consumer Confidence -20-25 -2-3 -4 - -30-5 Employees Real compensation Retail Sales (% QoQ) Consumer Confidence Total wage bill Retail sales Retail sales increased in September (% MoM) and recovered from previous declines (-0.1% MoM in August) Continuous employment gains, low inflation and improving confidence are the main drivers of consumption growth 10
Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 along with underlying improvements in the job market Unemployment rate by country (%) Annual unemployment change by gender & age (millions) 20 15 10 5 0,0-0,2-0,4-0,6-0,8-1,0-1,2-1,4-1,6-1,8 0 Sep-16 Aug-17 Sep-17 Eurozone Germany France Italy Spain Women 25-74Y Men 25-74Y Men < 25Y Women < 25Y Total The jobless rate declined to 8.9% in September, while the pp decline over the past year is mostly driven by Spain The unemployment fall continues and is observed mostly among the experienced population 11
Incoming data put a slight upward bias to our forecasts, mainly driven by the strengthening of Germany UNITED KINGDOM EUROZONE GERMANY 2017 1.4 2018 1.2 2017 2.2 2018 1.8 2017 2.2 2018 1.8 Uncertainty will continue to weigh heavily on growth, decoupling from further recovery in other areas Higher growth based on stronger domestic demand figures and improving exports 2017 3.1 Upward bias Unbiased Downward bias SPAIN 2018 2.5 Recent economic data point to a softening of the economy 2017 ITALY 2018 1.3 2017 1.7 FRANCE 2018 1.7 A improving pace of recovery on the back of investment Better outlook for private consumption, despite lagging behind the region
Oct-05 Oct-06 Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 Oct-13 Oct-14 Oct-15 Oct-16 Oct-17 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Oct-17 Both headline and core inflation declined in October, driven by lower prices of services Inflation and contribution of components (%YoY, pp) 2.0 - Core and trimmed-mean inflation (%YoY) 3,5 3,0 2,5 2,0 1,5-1,0-0,5 0,0 Services Non-energy industrial goods Processed Food Unprocessed Food Energy HICP (% y/y) Trimmed mean inflation Core inflation Beyond volatility, core inflation remains subdued after increasing by around 0.3pp throughout this year Headline inflation is expected to moderate further by year end due to energy prices, while core inflation should increase only very gradually 13
Inflation remains subdued across countries at the start of Headline and core inflation (%YoY) 3.5 3.0 2.5 2.0 2.0 1.8-0.4 0.3 0.7-0.3 0.8 0.8 0.4 0.1 0.7-0.2 - Germany France Italy Spain Portugal Austria Belgium Finland Netherlands Greece Ireland Headline Inflation (% YoY) Core Inflation (% YoY) Headline Inflation 2016 Core Inflation 2016 October HICP showed moderation in the majority of core countries, with declines in Germany (% after 1.8% YoY), Italy (1.1% after 1.3% YoY) and Spain (1.7% after 1.8% YoY). While in France increased (1.2% after 1.1% YoY). 14
Eurozone Economic Watch November 2017
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