Global Daily – Eurozone economy powers ahead

by: Aline Schuiling

Euro Macro: Eurozone economic sentiment rises even further – The European Commission’s Economic Sentiment Indicator (ESI) for the eurozone jumped higher in December. It increased from 114.8 in November to 116.0, reaching its highest level since May 2000. Sentiment in all the economic sectors (industry, construction, retail trade and services) increased sharply, while consumer confidence rose as well. At its current level the ESI suggests that GDP growth picked up in the final months of 2017, which was also signalled by rises in the composite PMI in November and December that were published earlier. A pick-up in GDP growth from the 0.6% qoq in Q3 is in line with our base scenario for the eurozone economy and also with our above-consensus growth forecast for 2018 of 2.5%. The idea that growth strengthened in Q4 was also supported by a sharp rise in retail sales in October that was published in a separate report today. The volume of retail sales increased by 1.5% mom, more than compensating for the 1.1% decline in September. The less volatile 3month-over-3month growth rate increased to 0.5% in November, up from 0.1% in October. Combined with new passenger car registrations, which increased by 2.3% 3m-o-3m in November, this bodes well for private consumption growth in the final quarter of 2017. Indeed we expect consumption growth to have strengthened somewhat in Q4 compared to the 0.3% qoq growth rate of Q3.

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Euro Macro: Decline in Germany’s factory orders no sign of slowdown – Less positive news came from a report on Germany’s factory orders. They declined by 0.4% mom in November, following an upwardly revised 0.7% increase in October (was 0.5%). However, we do not think that this decline in orders is signalling a significant slowdown in Germany’s industrial sector. Indeed, the decline probably merely reflects the normal pattern of volatility in the series. Orders had risen non-stop in every month since July, increasing by a total 6%, so some correction was to be expected. Moreover, the sharpest decline in November was in capital goods orders from abroad, which fell by almost 3.5% mom after they had grown non-stop since June (by more than 13% from June to October). More evidence for the view that Germany’s manufacturing sector is still growing vigorously was provided by earlier published survey results. Indeed, Germany’s manufacturing PMI and its new orders component increased in November and in December, reaching historical highs, while the Ifo business climate in manufacturing stood at historically high levels in the final months of 2017 as well, although it edged slightly lower in December.  (Aline Schuiling)