Eurozone
• August survey data indicating that solid growth momentum is continuing
Sentiment in the Euro Area manufacturing sector improved further in August (Figure 1). The purchase manager index (PMI) for the manufacturing industry increased from 56.6 to 57.4, while the services PMI index decreased moderately from 55.4 to 54.9. Overall, the composite index for the Eurozone stepped up (55.8) and keeps indicating bright economic expansion in Q3. According to a simple PMI-based tracking model of GDP, the August outcome would imply 0.5-0.6 % quarterly Eurozone GDP growth in the third quarter.
Equivalently, the manufacturing PMI result for France (from 54.9 to 55.8) and Germany (58.1 to 59.4) improved, while the services sector outcomes remained fairly stable compared to the previous month. The French INSEE confidence survey for the manufacturing industry inched up accordingly in August to the highest level since 2007. In addition, the prominent German ifo-business climate indicator remained stable at a multi-year high (115.9) in August driven by an improving judgement of current business conditions (107.9 after 107.3) and a small decline in future expectations (124.6 after 125.5); despite the unfolding of the alleged collusion and emissions scandal among German carmakers.
This week’s Euro Area data highlights will include the flash estimate for the inflation rate and the unemployment rate in August.
CEE
• In the CE-4, buoyant growth continued in Q2.
• Russia’s recovery is gathering pace.
Preliminary GDP estimates for Q2 2017 in 10 CEE economies (Figure 2) give further indication of a prolonged upswing in the region. For most economies Q2 estimates are in line with GDP growth in Q1, except for the Czech Republic (+4.5 %) and Russia (+2.5 %), which show signs of trend acceleration.
The preliminary estimate of the Czech Statistical Office for Q2 2017 shows accelerated real economic growth of 4.5 % after 3 % (y/y, swda) in Q1. The Czech economy, therefore, continues its upswing with 3.4 % average real GDP growth since the recession in 2012/2013. Even though the components of GDP have not yet been published (1st of September), we expect Czech real GDP growth to be primarily driven by domestic demand. Since Q4 2014 final consumption expenditure has been a stable contributor to GDP growth at an average rate of 2 % (Figure 3). Sound labor market conditions with stable employment growth (+1.3 %, y/y), an unemployment rate of 3 % and continued growth in real wages (+2.8 % in Q1, y/y) fuel private consumption.
In addition to final consumption expenditure, we expect gross capital formation to regain its positive stimulus, also being driven by EU funds absorption. With respect to net exports, which compensated for the decline in investment during the last quarters, monthly data on merchandise trade indicate a rather weaker contribution to GDP growth with real import growth (+4.2 %) surpassing real export growth (+2.7 %, y/y) in Q2 2017. Besides positive signs from hard data, also the Business and Consumer Confidence Indicator signals a continuation of the recent economic upswing, increasing to 14.1 from 13.0 in July.
The recovery is gathering pace in Russia. Real GDP grew by 2.5 % (y/y) in Q2 surprising on the upside after expanding by 0.5 % in the first quarter of the year (Q2 GDP details are not yet available.) Presumably, the ongoing recovery of the demand side fuelled the GDP growth acceleration. Rising real wages (+4.6 % y/y in July) propel the expansion in consumer expenditures (Figure 4). In addition, households gain from increasing credit availability. In July, loans to households rose by 6.5 % (y/y). Car sales continued their strong recovery rising by 19 % (y/y), while real retail sales expanded moderately by 1.0 % (y/y) in the month of July.
Growth in industrial production weakened gradually in July (1.1 % after 3.5 % y/y), while the manufacturing survey that is conducted by the Federal State Statistics Service (FSSS) remained at an elevated level. Profit margins of Russian stocks included in the Moscow stock exchange index rose by 22.7 % in Q2 compared to the previous quarter.
Authors
Martin Ertl Franz Zobl
Chief Economist Economist
UNIQA Capital Markets GmbH UNIQA Capital Markets GmbH
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