Global Daily – A day of two halves: eurozone booms, China slows

by: Aline Schuiling , Arjen van Dijkhuizen

Euro macro: Moving into a strong Q4 – Today we received the second estimate for eurozone GDP growth in Q3. The data showed a growth of 0.6% qoq, which was just slightly lower than the growth in Q2 of 0.7% qoq. The preliminary estimates for Germany, Italy and the Netherlands were released as well today, with Germany the strongest of the three. German growth accelerated to 0.8%, up from 0.6% in Q2. However, growth from Italy also impressed, it rose to 0.5%, up from 0.3% the quarter before. The only country, where growth slowed down sharply was in the Netherlands a decrease to 0.4% from 1.5% in Q2. However, the drop was not a surprise after the stellar performance in Q2, a matter we discuss in detail in our note here.

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Overall, the numbers today were positive, and we expect growth in the eurozone as a whole to remain close to the level of Q3, 0.6%, in the coming quarters. The financial conditions are expected to remain favourable and the ECB policy is consistent with a prolonged period of monetary stimulus. Furthermore, combined with strong growth in the global economy, it should mean that GDP growth in the eurozone should stay well above the trend rate. Early evidence for ongoing robust growth, was already given today, by a further rise in Germany’s ZEW economic sentiment indicator, which rose from 17.6 in October to 18.7 in November. (Aline Schuiling)

China macro: Activity data confirms resumption of gradual slowdown – Recent macro data confirms that the Chinese economy has resumed a gradual slowdown in the 2nd half of this year, after having picked up in late 2016 and the first half of 2017. Earlier this month, the PMIs for October weakened compared to the previous month, while the lending data published earlier this week was clearly below September levels. Real activity data published today also pointed to a weakening growth momentum. Annual growth of retail sales dropped to an eight-month low of 10.0% yoy (September: 10.3%), whereas markets had expected an acceleration to 10.5%. Industrial production dropped to 6.2% yoy (September: 6.6%), versus a consensus expectation of 6.3%. Fixed asset investment slowed to 7.3% yoy ytd, in line with market expectations. Taking everything together, Bloomberg’s monthly GDP estimate dropped to 7.0% yoy (September: 7.2%), although remaining above the official growth rate of 6.8% yoy in Q3. While the weaker October numbers are partly driven by specific supply factors such as air pollution curbs, the broader picture is that headwinds from Beijing’s financial deleveraging campaign and a fading credit impulse are going hand in hand with the resumption of a gradual economic slowdown. We expect full-year growth at 6.8% in 2017, falling moderately to 6.5% in 2018 (Arjen van Dijkhuizen)