China – Manufacturing PMI data should stabilize

Focus: China manufacturing PMI, Austria GDP forecasts

China – manufacturing PMI data should stabilize

Next week (July 1), China's manufacturing PMI data for June will be published. Following the intensification of the trade conflict between the US and China, manufacturing sentiment fell slightly in April and May and industrial production growth dropped to a multi-year low of +5% y/y in May. Accordingly, the renminbi has also come under pressure against the US dollar since the beginning of May. However, since the statements of Draghi in Sintra and the Fed meeting last week, the risk appetite of global investors has risen, from which the renminbi also benefited.

We expect manufacturing sentiment to stabilize in June. The outcome of the trade conflict with the US will remain decisive for China in the long term, so the focus will be on the expected meeting between Trump and Xi this weekend. We expect the situation to ease in the second half of the year, because Trump in particular will not want to risk further weakening of the US economy by intensifying the trade conflict ahead of the US elections scheduled for the end of 2020. Currently, Bloomberg's leading indicator suggests a further slight weakening of China's growth momentum in 2Q19 to around +6.3% y/y (+6.5% y/y in 1Q19). The continuing weakness of commodity prices indicates that other emerging market countries are also currently experiencing weak economic momentum. Against this backdrop, we do not expect any substantial upturn in Eurozone exports yet. However, rapprochement between China and the US could be a possible initial spark for the global economy and thus also for Eurozone exports.

AT – weaker growth momentum expected

This week, WIFO (Austrian Institute of Economic Research) lowered its 2019 growth forecast for Austria's economy by 0.3% to +1.7%. A further slowdown in GDP growth to +1.5% is expected for 2020. The lower forecasts are mainly due to the weakening of foreign demand, which is weighing on industry. WIFO therefore anticipates declining growth momentum in exports and investments. On the other hand, private consumption should remain the growth driver of Austria's economy in 2019 and 2020 thanks to fiscal measures (including a family bonus), strong wage settlements and rising employment. The IHS institute also expects growth to slow in 2019 (+1.5%), followed by slight acceleration in 2020 (+1.6%). Our GDP forecasts for 2019 (+1.7%) and 2020 (+1.6%) are roughly in line with the expectations of both WIFO and IHS.

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