- Eurozone domestic demand accelerates …
- … while GDP growth becomes more evenly spread amongst countries
- US job market gets boost from small businesses stepping up hiring, while job openings at record high
Domestic demand in the eurozone accelerates
The second estimate for GDP growth in the eurozone came in at 0.4% qoq, the same as the first estimate. Growth in 2014Q4 was revised higher to 0.4% from 0.3%. The details of Q1 GDP were published for the first time. They showed that domestic demand accelerated. Private consumption grew by 0.5% qoq, up from 0.4% in Q4, while fixed investment growth picked up to 0.8% from 0.4%. In contrast, export growth slowed down (to 0.6% from 0.8%), which was probably due to the temporary weakness in the US economy and the economic slowdown in China and Russia. Due to the strength of domestic demand, import growth accelerated to 1.2% from 0.8%, implying that total foreign trade shaved 0.2 percentage points off qoq growth in Q1 (in Q4 it added 0.1 ppt).
Growth to strengthen in the coming quarters
We expect the eurozone economy to gather some momentum in the coming quarters. Export growth should benefit from the weak euro. We think the effective euro exchange rate will depreciate further in the second half of this year, largely due to differences in monetary policy in the US and the eurozone. Moreover, domestic demand will continue to be supported by the historically low interest rates, improved access to bank loans for companies (SMEs in particular) and a gradual labour market recovery. Finally, fiscal policy will, on balance, not weigh on economic growth in the eurozone as a whole this year, following years of austerity.
Gap between periphery and the rest disappears
GDP growth within the eurozone has converged significantly in recent years. During the crisis years 2011-2012 the gap between yoy growth in the periphery (Italy, Spain, Portugal and Greece) and the rest of the eurozone widened to more than 3ppts. Since then, it narrowed rapidly and in Q1 2015 the gap closed. Looking at all the individual member states, we can also see a marked convergence in growth. The average difference between growth in each individual country and the eurozone has fallen to levels below that of the first ten years of the single currency area.
US small businesses step up hiring…
The NFIB small business confidence survey confirms that the US economy is improving. The May survey increased to 98.3 from 96.9 the previous month. The components suggest that plans to hire have edged up, while at the same time owners of small businesses are increasingly having difficulty to fill positions. These are strong signals that the labour market continues on a tightening mode. As for wages, owners of small businesses indicate that they have increased labour compensation a bit. These gains in compensation are still in a range of an economy with reasonable growth. This is another sign that, after a weak first quarter, economic growth is on a path to recovery.
…while US job openings are at record high
Job openings increased in April to 5.4 million from 5.1 million the previous month. This was the highest level of job openings since the series began in December 2000. Although this report lags the labour market report released some days ago, both reports confirm that the US labour market is recovering. Details by industry showed that labour demand was led by service sector industries, mainly transportation and utilities, as well as health care. As expected, manufacturing was down 6K, while openings in construction fell 15K. This is broadly consistent with the May nonfarm payrolls report released on Friday. We expect labour market slack to continue diminishing.