Eurozone GDP growth: Nothing much to argue for ECB doves - Natixis

Johannes Gareis, Research Analyst at Natixis, notes that the Eurozone GDP growth was confirmed at 0.3% QoQ for Q3, according to the third estimate from Eurostat.

Key Quotes

“This was as expected and the same rate seen in Q2. But this release provided a bit more insights into what was underpinning that growth. A deeper dive into the data shows a shift in the contributions to growth in Q3, but the main driver remained household and government consumption expenditure, which came in at 0.3% QoQ and 0.5% QoQ respectively (compared with 0.2% QoQ and 0.4% QoQ in the previous quarter). However, in a change from the past quarter, gross fixed capital spending increased only slightly in Q2 (0.2% QoQ), after it surged by a decent 1.2% QoQ in Q3. Moreover, flat exports (0.1% QoQ) versus a small increase in imports (0.2% QoQ) left net external trade dragging on GDP growth in Q3.” 

“We reckon that the pace of GDP growth of 0.3% QoQ will again be met in Q4, but there is upside potential. The final estimate of the Eurozone composite PMI for November came in below the flash estimate but still was at a 11-month high. Moreover, the European Commission’s Economic Sentiment Index (ESI) for the Eurozone nudged higher to 106.5 in November from 106.4 in October, with the later revised from an originally 106.3. Despite a weaker than expected increase, the ESI managed to post the best reading since December 2015. All in all, both indicators leave the recovery in the Eurozone on track and even point to a slight acceleration in the quarterly growth rate from the 0.3% QoQ gain seen in Q3.” 

“We received good news from the German economy, also. German manufacturing orders posted their strongest monthly gain in more than two years in October. Total manufacturing orders increased by 4.9% MoM, far surpassing our and the consensus forecasts. This reading was very strong, especially as big ticket orders - the usual suspect for rough movements in the monthly series – did not contribute to it. While we still expect a slight correction in November, the surge in Germany’s manufacturing orders in October bodes well for the manufacturing sector and thus GDP growth and underlines our view that quarterly growth in Q4 will accelerate from Q3’s disappointing 0.2% QoQ increase.” 

“The signals from the Eurozone’s real economy have been quite encouraging and won’t give the doves at the ECB much to argue. On the inflation front this is different, however. While the Eurozone’s flash headline inflation rate climbed to 0.6% YoY in November (compared with 0.5% YoY in October), the core inflation rate remained at just 0.8% YoY, after lacking an upward trend much of this year. In light of the still significant gap between the current headline inflation rate and the ECB’s target of about 2% and the weak core inflation rate, we forecast that the ECB will extend the QE programme by 6 months until September 2017 and maintain the pace of monthly purchases of EUR 80 bn at their meeting this week.”