- Q3 GDP growth report confirms that that the US economy has embarked on a strong recovery
- Eurozone data are turning up, signalling a moderate recovery, though inflation will remain very low
- Banks suggest that they will step up TLTRO take up in December, but not to buy assets
US economy continues above-trend expansion
Third-quarter advance GDP rose by 3.5% annualised, following a 4.6% gain in the second quarter, which was stronger than consensus (3%). The details showed that third quarter growth was mainly due to an increase of net exports and government spending. But consumption growth (1.8% following 2.5%) and non-residential investment (5.5% following 9.7%) also expanded, albeit moderately. Residential investment was soft (1.8% after 8.8%), showing that the housing market remains a weak link for now. The deceleration compared to the third quarter was mainly due to a downturn in inventories, which subtracted 0.6% from growth. This report marks the second consecutive quarter of well-above-trend growth and indicates that the US recovery is now on a firm footing. Looking ahead, we see robust growth continuing, but with the consumer playing a bigger role. Indeed, we think that consumer spending will pick up in the fourth quarter as a result of solid gains in real personal income. Consumer confidence has risen significantly on the back of lower gasoline prices in the past months. This solid report adds to the case for the Fed to start its monetary tightening cycle in mid-2015 after ending its asset purchase programme yesterday, which is in line with our base case.
…and finally some positive eurozone economic data
There was a batch of more encouraging eurozone economic reports yesterday. The economic sentiment indicator rose to 100.7 in October from 99.9 in September, which was well above the consensus forecast of 99.7. This took the indicator above its long-term average of around 100 and to levels consistent with moderate economic growth. Meanwhile, German unemployment fell by 22K in October after a 9K rise in September. This leaves the indicator on a moderate downward trend in line with evidence that the upswing in employment is continuing. Finally, early Q3 GDP data from Spain (+0.5% qoq following +0.6% in Q2) and Belgium (0.2% from 0.1%) pointed to ongoing expansion. These reports follow on the heels of a more mixed tone for eurozone data over the last few days after a period in which negative economic surprises were dominant. On the other hand, inflation looks set to remain very low in coming months. Although Spanish and Belgian inflation ticked up in October, German inflation edged down. Today’s flash for the eurozone may show it stable at 0.3% yoy.
Bank views on the TLTROs from the ECB survey
The ECB’s Q3 Bank Lending Survey contained some ad hoc questions about the TLTROs. It turns out that 44% of all responding banks participated in the first TLTRO in September. When asked if they would participate in the December TLTRO, 47% answered ‘yes’ and 24% ‘no’, while 29% were still undecided. This suggests that more banks will take up money in the second TLTRO than in the first. Indeed, we expect a bigger take-up in December (please also see: Daily Insight 19 September ‘TLTRO: big December likely’). When asked why the bank had participated, the majority mentioned the attractive conditions, while some had a precautionary motive. Banks that did not or will not participate were primarily motivated by a lack of funding constraints. Whereas 15% of the non-participating banks mentioned concerns about a market stigma in September, none of them used this argument in relation to the December TLTRO. Moreover, 19% of the non-participating banks mentioned ‘concerns about insufficient loan demand’ in September, while merely 3% used this argument for not participating in December. This seems to be in line with the rise in loan demand reported in the regular survey. Finally, when asked whether the take-up of TLTROs would contribute to granting loans to non-financial corporations, which is one of the main goals of the programme, 20% replied ‘yes, considerably’, while 67% replied ‘yes, somewhat’. Meanwhile, almost 90% of the participants of the TLTROs said that the funds would basically have no impact on their purchases of sovereign bonds or other financial assets.