Macro Weekly – Capex the key – week of revisions

by: Han de Jong

  • Various statisticians revising capex etc higher
  • Industrial output and trade generally stronger, except in Germany
  • Brexit moves to the next phase
171208-Macro-Weekly-1.pdf (80 KB)

Strong global growth can continue in 2018, but one of the developments that it requires is for growth of corporate investment to rise. Not only would this support overall GDP growth directly, it would also create jobs and incomes and it would support better productivity growth. We think there is every reason to be confident.

In a daily comment earlier this week, my colleague Nick Kounis commented on the chances for investment growth to accelerate in the period ahead. He expressed our optimism on this front. No sooner had the ink of his comment dried or Nick’s assertion was confirmed by Eurostat releasing more detail on the Q3 eurozone ‘national accounts’. They showed that gross fixed capital formation has increased 1.1% qoq in Q3. This is encouraging. Even more impressive was the revision to the Q2 numbers. The revised data says that investment has grown 2.2% qoq, although it must be said, the extremely volatile Irish data may have flattered the overall Q2 data.

Another material revision was made by the US statistician putting together data on capital goods shipments. This data is an important input into the national accounts as a proxy for corporate investment. The series for capital goods shipments outside of defence and aircraft had originally been reported to have grown by 0.4% mom in October. But this was revised to +1.1%. They are up 11.4% yoy and have shown monthly growth of more than 1% during the last four months.

Japanese statisticians joined the party of upward revisions for investment spending. Having reported private non-residential investment to have grown by a modest 0.2% qoq, the statisticians are now saying that is was actually 1.1% qoq.

So it looks like stronger growth of investment by corporates is already happening. And we expect that trend to continue in the quarters ahead as it is not only consistent with what companies are saying in surveys, but it is also supported by strong earnings growth, cheap money, the availability of credit, strong overall demand and increasing labour scarcity.

Industrial output

Most indicators related to the industrial sector globally were positive in recent days. French industrial production is growing strongly at the moment. Manufacturing output was up 6.9% yoy in October, the strongest growth in years. UK industrial production growth also strengthened in October: 3.6% yoy for the industrial sector (2.5% in September) and 3.9% yoy for manufacturing alone (2.7% in September).

Having said this, German industrial production was poor in October, for the second consecutive month. German IP fell 1.4% mom in October, a disappointment after September’s 0.9% mom drop. Orders were considerably stronger. They were up 0.5% mom in October, after growing by 1.2% mom in September. Given the orders data and the foreign data, I am assuming that German industrial production weakness is an aberration.

World trade data also good

World trade growth has accelerated this year. Recent data had been a little wobbly, however. But the trade data for November released so far in Asia has been encouraging. Chinese import growth (in USD) amounted to 17.7% yoy. Chinese exports were up 12.3% (after 6.8% in October). Taiwanese export growth was 14.0% yoy in November, after +3.0% and 28.0% yoy in October and September, respectively. The one country where recently published trade data disappointed was, again, Germany. German exports fell 0.4% mom in October, after also falling 0.4% mom in September. This is all completely in line with the above mentioned industrial output data. However, there is no reason why Germany would suddenly have weaker output growth and exports than all other countries, suggesting this also is an aberration.


UK and EU negotiators have reached a deal that should allow the European Council to give the go-ahead for the start of the second round of negotiations in the Brexit process. This is very positive. Yet, there are some points to be made here. The agreement on the question of the border between Northern Ireland and the Republic of Ireland is not yet very concrete. Before an agreement is reached on the future trade relationship between the UK and the EU it is difficult to say much about the border between the two countries, so what has now been agreed is really as far as it could go at this stage. It is also uncertain to what extent Theresa May will be under fire from within the UK for having given in ‘too much’ in the eyes of the strictest Brexiteers. But so far, so good.