US: Retail sales dampen interest rate expectations

• US: Retail sales dampen interest rate expectations 
• Eurozone: GDP stagnates in 2Q 
• Austria: Weak growth in 2Q

US retail sales for July disappoint

US retail sales in July stagnated compared to the previous month and remained below market expectations of 0.2%. No particular pattern can be recognized from looking at product categories. Some, like Clothes, Health and Personal Care Goods and Food, posted increases, while Motor Vehicles, Furniture and Electronics showed declining sales revenues. The trend, based on yearly growth figures, reveals a slowdown, albeit from elevated levels. We expect interest rate expectations to remain muted at least until Tuesday, when CPI figures will be released. The markets could react quite sensitively to any even minor deviation of the actual numbers from expectations. The next day, the minutes of the latest FOMC meeting will be released, which could contain some hints of which direction, if any, the committee is leaning. 

Eurozone GDP stagnates in Q2

This week’s release showed that economic activity stalled in the Eurozone in 2Q compared to the previous quarter. This constitutes a slowdown, as in 1Q the growth rate was 0.2%. Looking at the largest economies, Germany posted a quarterly decline of -0.2% after a weather-related strong growth rate of 0.7% in the first quarter. A breakdown by sectors is not yet available, but the statistics office mentioned in the written statement that foreign trade and investments (construction) had shown negative development, while consumption (household and government) expenditure had grown somewhat. The French economy stagnated for the second time in a row in 2Q. Foreign trade and investments contributed negatively, while household consumption expenditure showed significant acceleration. Italy posted yet another decline of economic output in 2Q (-0.2%), which is worse than in the previous quarter (-0.1%). Spain was the bright spot, reporting 0.6% growth. This not only constitutes a high growth rate but also an acceleration compared to 1Q (0.4%). PMI indices released on Thursday will provide the markets with more recent news on major Eurozone economies next week. Additionally, they will give a first indication of whether the recent acceleration of the crisis between western countries and Russia has impacted the economy. 

Austrian economy growth remains sluggish in Q2

According to preliminary evaluation by the Austrian Institute of Economic Research, the Austrian economy grew 0.2% on a quarterly basis in real terms (Q1: 0.1%, seasonally and working day adjusted figures). On a y/y basis, the growth rate stood at 0.6% compared to Q2 2013. After the mostly export-driven improvement of economic performance in the third and fourth quarters of 2013, the growth rate in Austria slowed down again in H1 2014. Even though exports grew stronger in Q2 than in the previous period (0.5% vs. 0.3% in Q1), the trade balance barely remained positive. 

Domestic private consumption grew only at a rate of 0.1% in both quarters and investments remained negative (-0.9% in both Q1 and Q2). For the next quarters, we expect a slight improvement of investment growth; but this should, however, should remain cautious. We also expect private consumption to moderately accelerate in H2 2014.