Global Daily – US trade deficit reaches five year high

by: Maritza Cabezas , Aline Schuiling

US Macro: US trade deficit widens to a five year high – Trump’s administration has been eyeing the rising trade deficit as one of the problems for slow US GDP growth and weak US manufacturing activity. According to the Commerce Department, the US goods and services trade deficit increased to USD 48.5 billion in January from USD 44.3 bn the previous month, mainly as a result of higher oil prices lifting imports. However, the non-petroleum trade deficit also widened, but to a lesser extent. Total exports rose by 0.6%, while imports rose by 2.3%. The goods trade deficit with China increased in January by 13.4% mom to USD -31.3bn, mainly as a result of stronger import growth. Meanwhile the goods trade deficit with Mexico narrowed by 10.1%, as a result of stronger export growth. Already in the fourth quarter of 2016 net exports were a drag to US GDP growth of 1.7 ppts.  In the first months of this year, we have seen strong demand for durable goods. January’s imports of cars increased by 22% mom. Trying to reduce the trade deficit will be a difficult task, particularly in an economy with stronger momentum in domestic demand. We don’t expect a considerable narrowing of the trade deficit in the coming time. (Maritza Cabezas)

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Euro Macro: Broad-based GDP growth in Q4 of 2016 – The final estimate of Q4 GDP growth in the eurozone came in at 0.4% qoq, which is unchanged from the previous estimate and also the same rate as in Q3 2016. The details of GDP were published for the first time. They showed that growth was broad-based in the final quarter of last year. Private consumption and government consumption both grew by 0.4% qoq (up from 0.3% and 0.1% in Q3, respectively). Meanwhile, fixed investment growth bounced back in Q4, expanding by 0.6% following a 0.7% contraction in Q3. Finally, exports and imports both accelerated (to 1.5% from 0.3% and to 2.0% from -0.1%, respectively). As growth in imports outpaced growth in exports in Q4, the contribution to GDP growth of net exports turned negative (-0.1 pps from +0.2pps in Q3). Looking ahead, we expect growth to stay close to the level of the second half of 2016 in the first half of 2017. We think this will be the combined result of accelerating growth in exports and fixed investment and slowing consumption growth. Indeed, recent data has shown that private consumption was hit by the sharp jump in inflation in Q1. Retail sales declined in December and January, while demand for consumer credit declined and consumer sentiment edged lower. (Aline Schuiling)

Euro Macro: Germany’s factory orders plummet – Factory orders in Germany were much weaker than expected in January. They plummeted by 7.4% mom, down from a 5.2% increase in December 2016. All the main components (intermediate goods, capital goods and consumer goods) declined, but the weakness was concentrated in the notoriously volatile capital goods orders, which fell by 9.9% mom in January (domestic capital goods -16.8%, foreign – 5.6%). The 3m-o-3m growth rate in total orders fell to 0.2% in January from 4.0% in December. Foreign orders from outside the eurozone weakened the most, falling by 1.6% 3m-o-3m in January (December: 3%), whereas foreign orders from other eurozone countries increased by 1.2% 3m-o-3m (December: 2.3%). Overall, we think the drop in orders in January largely reflects payback for the sharp rise in December and that Germany’s industrial sector will grow robustly in the coming quarter. We expect it will benefit from the global economy gathering traction and the ongoing recovery of the eurozone economy (see above). Robust growth in industrial production in Germany was also signalled by sharp rises in the Ifo business climate indicator for the manufacturing sector and the  manufacturing PMI for Germany in the final months of 2016 and the first months of 2017. (Aline Schuiling)