Eurozone Economic Watch February 2018
Eurozone: Strong growth continues in 1Q18, but confidence seems to peak GDP growth moderated slightly in, but there was an upward revision to previous quarters. Available data suggests that domestic demand could slow, but offset by increasing net exports. GDP increased by 2.5% in 2017, above potential for the third year in a row. Our MICA-BBVA model estimates a slight upturn in GDP growth to around 0.6/0.7% QoQ in 1Q18, but we continue to see a moderation over the year ahead, to average a still strong growth of around 2.2% in 2018. Hard data improved by year end boosted by strong domestic fundamentals and steady global growth. Strong exports, despite the moderation in foreign orders, continued to support the recovery in the industrial sector and investment. There is some moderation in private consumption, but improving labour market and low inflation continue to support consumer confidence. Sentiment indicators remain very strong compared with their historical averages and leading components are consistent with resilient activity in coming months, but February figures moderated markedly, indicating that the optimistic mood might have reached a peak. Headline inflation eased in January to 1.3% in the EZ, and could decline a bit further in February due to energy base effects. Core inflation surprised slightly upwards, increasing to 1.2% YoY. Confidence surveys show some incipient signs of price pressures in coming months, in line with our forecast of a gradual increase in core inflation over the year. 2
4Q16 1Q17 2Q17 4Q16 1Q17 2Q17 4Q16 1Q17 2Q17 3Q16 4Q16 1Q17 2Q17 Germany France Italy Spain Slight growth moderation in across countries, except in France, but strong recovery in 2017 as a whole Growth in 2017 gained traction in Germany (2.5% after 1.9% in 2016), France (1.9% after 1.1%) and Italy (1.5% after 1.1%), while the strong momentum remained in Spain (3.1% from 3.3%). GDP has surpassed pre-crisis levels also in Spain now (but not yet in Italy). GDP, Contribution by Components (%QoQ, pp) 2.0 12.0 1.5 0.5 0.6 0.6 0.3 0.8 8.0 4.0-0.5 - -1.5-4.0-8.0-2.0-12.0 Germany France Italy Spain Diff. GDP level relative to 2008 Consumption Gross fixed capital formation Change in inventories Real GDP Eurozone GDP 3
3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 Mar-18 Growth is expected to remain broadly stable in 1Q18 at rates similar to those observed over the past four quarters GDP growth moderated slightly in, after upward revisions in previous quarters. Domestic demand probably slowed, but net exports improved Our MICA-BBVA model points to a quarterly GDP growth of 0.6/0.7% QoQ in 1Q18 GDP, Contribution by Components (%QoQ, pp) 1.5 GDP and MICA forecasts (%QoQ) 0.8 0.5 0.6 0.6 0.4-0.5 0.2 - GFCF Net Exports Real GDP Change in inventories Consumption CI 20% CI 40% CI 60% Observed 4
Feb-11 Aug-11 Feb-12 Aug-12 Feb-13 Aug-13 Feb-14 Aug-14 Feb-15 Aug-15 Feb-16 Aug-16 Feb-17 Aug-17 Feb-18 Feb-14 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 Feb-18 Confidence in 1Q18 has remained at very high levels so far, but showing some signs of stabilization Both PMI and ESI figures declined slightly in early 2018, suggesting that the peak of growth could be behind us Some moderation signs in industrial confidence, partly due to moderation in new orders, but services expectations improved PMI and GDP (level, %QoQ) 62 60 58 56 54 52 50 PMIs level GDP (% QoQ) 1.2 0.9 0.6 0.3 EC confidence survey (level) 120 115 110 105 100 95 90 85 30 20 10 0-10 -20 80-30 Real GDP (% QoQ) Manufacturing PMI PMI Services PMI ESI (LHS) Consumer Conf (RHS) Industrial Conf (RHS) Services Conf (RHS) 5
February PMIs in France and Germany point also to moderation At a country level, a retreat is seen in Germany and France in both manufacturing and services in February. Positive surprise in Italy in January, where the composite index reached an historical high. PMI survey (level) 64 62 60 58 56 54 552 50 48 46 44 Jan-18 Feb-18 Jan-18 Feb-18 Jan-18 Feb-18 Jan-18 Feb-18 2Q17 1Q18 2Q17 1Q18 2Q17 1Q18 2Q17 1Q18 Germany France Italy Spain Composite PMI Manufacturing PMI Services PMI 6
Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 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 Jan-18 Industrial production accelerated in 2017 (2.9% after 1.5% in 2016), but has grown at more stabilized rates in recent quarters IP has grown at around 1.4% QoQ in recent quarters, supported in particular by export orders The production of durable and capital goods, along with high capacity utilization, points to a favourable investment outlook Industrial production (level, %QoQ) 120 2.0% IP capital equipment, investment in M&E and capacity utilisation (%QoQ, %) 115 110 105 0.5% 100 95 90 1.4% 0.3% 0.4% % % -0.1% 0.4% 0.9% 0.1% 1.5% 1.3%1.3% 1.5% % 0.5% % -0.5% 4 3 2 1 0-1 -2 Inv. M&E, IP capital (% QoQ) Capacity utilization (%) 85 83 81 79 77 75 IP (2010=100) Consumer goods Capital goods Quarterly change Investment M&E (% QoQ) IP Capital (% QoQ) Capacity Utilization (%) 7
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 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Export growth consolidated in 2017 despite the appreciation of the euro Exports ended the year on a solid gear (+2.9% QoQ in ) in a context of sustained global growth The trade balance remained stable at around 0.8% of the GDP in Trade balance ( bn) Trade balance (%GDP) 200 190 180 Exports, Imports & Trade balance 1,2 1,0 0,8 0.9 0.8 0.7 170 160 150 140 Trade Balance (% GDP) 0,6 0,4 0,2 0,0 0.6 0.5 0.4 0.3 0.2 0.1 Trade balance ( bn) Imports Exports 8
1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 Across destination, exports to all major regions gained traction by year end, except to China Strong and steady global growth should continue to support exports over 2018, as suggested by new export orders Exports contribution by destination (%QoQ, pp) 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
Jan-13 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 Jan-18 Retail sales slowed in, but remain solid Despite the significant acceleration of retail sales in 2017 (2.5% from 1.5%), they moderated over 2H17 to more sustainable rates. High consumer confidence suggests that private consumption should continue to be a key growth driver in coming quarters. Retail sales and consumer confidence (%YoY, pts) 3.0% 2.5% Retail Sales (% YoY) 2.7% 2.5% 5 0 2.0% 1.5% % 0.5% % -0.5% -0.6% 1.4% 1.5% Consumer Confidence -5-10 -15-20 -25 -% -30 Retail Sales (% YoY) Consumer Confidence 10
Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 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 Dec-17 The labour market improved further in 2017 across the board The EZ jobless rate declined to 8.7% in December, which is one percentage point less than a year ago Unemployment rate by country (%) 20 15 10 5 Broad decline across all working groups, but much more moderate for youngers Annual unemployment change by gender & age (millions) -0.2-0.4-0.6-0.8 - -1.2-1.4-1.6-1.8 0 Dec-16 Nov-17 Dec-17 Eurozone Germany France Italy Spain Women 25-74Y Men 25-74Y Men < 25Y Women < 25Y Total 11
Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Headline inflation declined in January, but with a slight upward surprise in core inflation (1.2% YoY) Lower inflation in energy and fresh food in recent months. Energy base effects should fade from February onwards Inflation and contribution of components (%YoY, pp) 2.0 1.5 0.5 The increase in core inflation in January reflected higher prices of both non-energy industrial goods and processed food Core and trimmed-mean inflation (%YoY) 3.5 3.0 2.5 2.0-0.5 - -1.5 1.5 0.5 Unprocessed Food Processed Food Services Energy Non-energy industrial goods HICP (% y/y) Trimmed mean inflation Core inflation 12
Increasing core inflation across countries in January, expect in Germany According to preliminary data, HICP increased in January in Italy (+1.1% after +%), remain muted in France (+1.2%) and declined in Spain (+0.7% after +1.2%) and Germany (+1.4% after +1.6%) Headline and core inflation (%YoY) 3.5 3.0 2.5 2.0 1.5 0.5 1.7 1.5 1.2 1.3 0.6 0.8 2.0 1.1 1.6 1.3 2.2 2.2 1.6 0.8 0.5 1.3 0.9 1.1 0.6-0.5 - Germany France Italy Spain Portugal Austria Belgium Finland Netherlands Greece Ireland Headline Inflation (% YoY) Core Inflation (% YoY) Headline Inflation 2017 Core Inflation 2017 13
Eurozone Economic Watch February 2018