Hello, forex friends! It’s been a while since I did an economic roundup for the Euro Zone. And since there’s gonna be an ECB statement this Thursday, I though that now would be an opportune time to make one. And here it is.
Note: As with all Economic Snapshots, there are nifty tables at the bottom, so you can skip to those if you’re a forex trader who’s in a hurry. Howeve, the bullet points provided highlight the underlying details and trends that give the numbers their proper context.
- The final estimate for the Euro Zone’s Q4 GDP growth was unchanged at +0.4% quarter-on-quarter, which is the same rate of quarterly expansion as in Q3.
- Using the expenditure approach, the 0.4% rise in household spending was the main driver, adding 0.2% to quarterly GDP growth.
- Change in inventories and government spending both added 0.1% to quarterly growth each.
- No distinction between private and public investments, but gross fixed capital formation grew by 0.6% after falling by 0.7% previously, and thereby added another 0.1% to quarterly GDP growth.
- Net trade, meanwhile, was a drag and subtracted 0.1% from GDP growth, since the 1.5% increase in exports was overwhelmed by the 2.0% increase in imports.
- Year-on-year, the Euro Zone’s GDP grew by 1.7%, which is a tick slower than Q3’s +1.8%.
- Household spending was also the main driver for annual growth, since household spending added +1.0% to annual GDP growth.
- Government spending and total gross fixed capital formation each added 0.3% to GDP growth.
- However, gross fixed capital formation added a bigger 0.5% to GDP growth back in Q3, which is why total Q4 GDP growth was a tick slower compared to Q3.
- As for trade it had a positive contribution of 0.2% to GDP growth, thanks to exports rising by 3.3% year-on-year, which was partially offset by the 3.2% increase in imports.
- The final headline HICP estimates for March were unchanged at 0.8% month-on-month and 1.5% year-on-year.
- This is the fastest month-on-month increase in 12 months, thanks mainly to the 3.5% surge in non-energy industrial goods (+0.0% previous).
- However, the year-on-year reading eased to a three-month low.
- Moreover, the slowdown breaks 10 consecutive months of ever better annual readings.
- Looking at the details, the slowdown in the headline reading was due to the weaker increase in the price of food, alcohol, and tobacco (+1.8% vs. 2.5% previous), energy (+7.4% vs. +9.3% previous), and services (+1.0% vs. +1.3%).
- The weaker increase in the cost of services is the reason why the core reading (HICP less energy and food) only increased by a slower 0.7% (+0.9% previous).
- This is an 11-month low, by the way.
Business Conditions & Sentiment
- Moving on, Markit’s flash manufacturing PMI reading for April came in at 56.8.
- This is better than the 56.2 figure from March and is a 72-month high to boot.
- Meanwhile, the reading for Markit’s flash services PMI came in at 56.2, which is also a 72-month high.
- And since both the manufacturing and services PMI were both at 72-month highs, the
- Markit’s composite PMI reading for the Euro Zone also rose from 56.4 to 56.7, which is also a 72-month high.
- Commentary from Markit noted that the PMI readings are “running at a level consistent with 0.7% GDP growth, up from 0.6% in the first quarter. Such strong growth, if sustained, will inevitably lead to upward revisions to economists’ 2017 forecast.”
- Further commentary stated that the manufacturing sector “clearly [benefited] from the weak euro, which has helped drive export sales growth to a six-year high.”
- As for the service sector, it benefited from the improvement in the labor market “via higher consumer confidence and spending.”
- Moreover, “Employment growth has accelerated to the best seen for nearly a decade.”
- Not only that, “The survey’s price measures remain elevated at the highest for around six years and suggest that we will see renewed upward pressure on consumer prices in coming months.”
Consumer Spending & The Labor Market
- The jobless rate for the whole Euro Zone ticked lower from 9.6% to 9.5% during the February period.
- This is the lowest reading since May 2009, which is awesome.
- Trend-wise, the jobless rate peaked at 12.1% during the April 2013 period and has been steadily sliding lower ever since, with only one uptick during all that time.
- Meanwhile, the number of unemployed people in the Euro Zone fell by 140K to 15,439K.
- Improvements in the labor market apparently translated into higher consumer spending, since retail sales volume in the Euro Zone rose by 0.7% month-on-month in February.
- This is the fastest monthly increase in four months.
- The pick up in retail sales volume was due the 0.7% increase in sales of food, drinks, and tobacco (-0.1% previous).
- Non-food stores also reported a 0.9% increase in retail sales after reporting stagnant growth in January.
- Among the non-food stores, textiles, clothing, and footwear stores had the largest increase, reporting a 2.2% jump in retail sales volume (-1.4% previous).
- Meanwhile, automotive fuel stores were a drag, since they printed a 0.9% fall in sales (+1.2% previous).
- On a year-on-year basis, retail sales volume grew by 1.8%.
- This is a three-month high and marks the second straight month of improving annual readings.
- The 2.4% increase in sales reported by non-food stores was the main contributor to the faster annual increase.
- Food, drinks, and tobacco stores, meanwhile, reported a slower annual increase in retail sales (0.8% vs. 1.1% previous).
- After printing a deficit in January, trade recovered by printing a seasonallu unadjusted surplus of €17,752.2 in February.
- The surplus was thanks to a 4.2% increase in exports and imports falling by 6.9%.
- This is the first increase in exports after two straight months of declines.
- However, the Q3 months all printed surpluses, so unless the Euro Zone’s surplus in March really widens by a lot, then chances are good that the deficit in January would result in trade being a drag on Q1 2017 GDP growth, at least on a quarter-on-quarter basis.
- If trade within the single market is included, exports grew by 4.0%, which is slower than the 12.8% printed previously.
- Imports, meanwhile, increased by 6.2%, which is slower than the 16.6% reported previously.
Putting it all together
The Euro Zone’s GDP grew by 1.7% year-on-year in Q4 2016, which is a tick slower compared to Q3’s +1.8%. No worries, though, since that’s right smack on the ECB’s forecast for 2016.
Looking forward, the ECB expects GDP to grow at an annual pace of 1.8% by the end of 2017. However, the available economic data are painting a mixed picture for Q1 2017, since improvements in the labor market have apparently translated into higher retail sales. On the flip side, trade looks to be in a rather bad spot, unless March prints a really big trade surplus.
But on the brighter side of things, the PMI readings have been trending higher, with the readings for April all at 72-month highs. And commentary from survey respondents and Markit’s analysts were all rather upbeat, with regard to employment, exports, and domestic consumer demand. So even if Q1 does disappoint, things may become better in Q2, based on the anecdotal evidence presented by Markit at least.
Interestingly enough, the ECB expects private consumption to weaken in 2017 while exports will pick up the pace. As you probably saw in the chart above, the ECB expects exports (including intra Euro Zone trade) to rise by 4.3% while imports (also including intra Euro Zone trade) will rise by 4.6%.
As of February, exports only rose by 4.0% while imports overwhelmed exports with a 6.2% rise, so there’s more to go. But again, the PMI reports are painting a rather upbeat picture, so those may change for the better to be more in line with the ECB’s forecasts.
As for the labor market, the ECB forecasts that the jobless rate would fall to 9.4% by the end of the year. And as of February, the jobless rate was already at 9.5%. And again, the PMI reports noted a pick up in payrolls numbers, which will probably push the jobless rate lower.
With regard to inflation, meanwhile, the ECB projects that the HICP will print an annual increase of 1.4% by the end of the year. And while the annual HICP reading for March took a hit, it still came in at 1.5%, so we’re getting there. And going back again to the PMI reports, they noted that “The survey’s price measures remain elevated at the highest for around six years and suggest that we will see renewed upward pressure on consumer prices in coming months.”
Overall, the Euro Zone economy as a whole looks okay and appears to moving closer to the ECB’s 2017 forecasts. Although the same can’t be said for individual Member States. But then again, the ECB doesn’t really nitpick that much when it comes to individual Member States.