UNIQA Capital Markets Weekly

Eurozone
•    Leading indicators bounce again in May indicating continuing solid expansion in economic activities

Survey-based sentiment indicators for the Euro Area keep surprising on the upside (Figure 1). In May, the purchase manager index (PMI) for the manufacturing sector rose to 57.0 from 56.7 indicating strong expansion in manufacturing activities. As the PMI component for the services sector decreased from 56.4 to 56.2, the overall composite PMI remained unchanged to the previous month at an elevated level or 56.8. The index has now been rising (or remaining unchanged to the previous month) since September of last year. The country outcomes accelerated for France and Germany. The French composite PMI rose from 56.6 to 57.6 amid an increase in the services sub-index (from 56.7 to 58.0), while the manufacturing part decreased from 55.1 to 54. The German composite PMI bounced to 57.3 from 56.7 due to a further acceleration in the manufacturing sector (from 58.2 to 59.4); the services PMI declined from 55.4 to 55.2. In addition, the prominent German ifo-business climate index jumped to 114.6 from 113; marking the highest level ever recorded since 1990. Both the current assessment and the expectations index improved in May.

In Q1, the Euro Area real GDP expanded by 0.5 % (q/q) and 1.7 % (y/y) and the rise in the surveys until May indicates a further acceleration in GDP growth. Historically, the PMI index has correlated very well with GDP and a purely PMI-based GDP nowcast (i. e. a coincident tracking estimate) would signal that quarterly GDP growth could accelerate to around 0.7 % in Q2 2017. The positive signal from the sentiment surveys has to be confirmed by incoming monthly real activity data to infer a more reliable picture about the state of the Eurozone business cycle so far in Q2.
In Q1, the German economy expanded by 0.6 % compared to the fourth quarter 2016 and reported by German statistics office (Destatis) last week. Positive growth contributions came from both domestic and foreign demand. Especially fixed capital formation increased markedly in machinery and equipment (1.2 %) and construction (2.3 %); Destatis reported that mild weather was one reason for the rise in construction. Household consumption expenditure rose by 0.3 % (q/q) and government consumption increased by 0.4 %. Exports were up by 1.3 % and the increase in imports was lower (0.4 %) relative to exports. In year-over-year terms, real GDP increased by 1.7 % (almost unchanged to the previous outcome).
On the production side of GDP, the highest growth rates were recorded for manufacturing (4.1 % y/y), construction (4.0 % y/y), business services (3.8 %) and information and telecommunication services (3.7 %).
Gross wages and salaries of German employees were up by 4.2 % on a year earlier and the disposable income of households increased by 3.7 %.

CEE
•    Aggregate demand is firming in Russia

Russia’s growth indicators improved in April. Industrial production (IP) increased by 2.3 % (y/y), while in the previous month IP had risen by 0.8 %. According to the survey conducted by the Russian state statistics office (FSSS), manufacturing confidence has continuously been improving.
Car sales started to rise (in annual terms) in March for the first time since 2013. Car sales had massively plunged in 2015 (-31.1 %) and 2016 (-15.1 %) before increases (9 % and 7 % y/y) were recorded in March and April. This indicates improving confidence and consumer spending (Figure 2).
In addition, real retail sales stagnated on the year earlier in April, while previously it had been declining since early 2015. In Q4 2016, household consumption expenditure was still down by 3.2 % (y/y) and the monthly data suggest that consumer demand is on the verge to grow again. Real wages are gradually recovering (+2.2 % y/y) and household credit constraints become less binding (Figure 3), as loans to households recovered (4.0 % y/y in April) as well as loans to non-financial corporations (3.5 %).


Real GDP grew by 0.5 % (y/y) in Q1 (details not yet published) and firmed further after growth of 0.3 % in Q4 2016. We expect GDP to increase by 1.2 % in the total of 2017 (after -0.2 % in 2016).