- Review: With no major data from the US due to the partial government shutdown (but rumors that a short-term debt ceiling increase may emerge soon – which would delay the Fed's tapering even further), this week's focus was on Europe's industrial reports. If we look through the volatility of monthly data, the main message is that a recovery is unfolding across the old continent, although progress is not spread equally among countries.
- Focus: As signs of an economic turnaround in the eurozone become more convincing, we take the opportunity to compare our current GDP forecasts with the growth trajectory observed after the five most acute episodes of financial instability in advanced economies over the last fifty years (the so-called “Big Five”). We find that EMU-wide GDP would need to rise by about 3% through end-2014 in order to match the historical pattern of the “Big Five”. This would be consistent with an annual GDP growth rate of 2.2% in 2014, significantly above our 1.0% forecast. However, we remain convinced that the GDP acceleration in the eurozone will be weaker than in the “Big Five” framework. This is mainly due to comparably weak global growth, a pro-cyclical fiscal response together with a still highly dysfunctional transmission mechanism of monetary policy, and no export support via the exchange rate channel.
- Preview: With no major (new) data to be published in Europe and the US, next week's focus is on the raft of Chinese activity figures. While we expect the numbers to show slightly higher economic growth over the summer months (3Q13 GDP should have risen 7¾% yoy), the medium-to-longer term trend should nevertheless still be heading south.
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