29 Apr 2016
Eurozone: Growth pick-up in France - MUFG
Derek Halpenny, European Head of GMR at MUFG, suggests that while the real GDP report was a concern in the US yesterday, the GDP data from France this morning was the opposite with the 0.5% Q/Q gain recorded stronger than expected.
Key Quotes
“That means the euro-zone data, released later this morning may also now come in stronger than the expected 0.4% gain. This will no doubt be used by ECB Council members as evidence that the monetary stance adopted by the ECB is helping to lift real GDP growth.
Still though, overall growth levels remain subdued at annual growth rates well below 2.0% (France annual real GDP growth actually slowed from 1.4% to 1.3%) and that to date has not been enough to lift underlying inflation. We will also get the advance estimate for annual inflation from the euro-zone this morning and the annual rate is expected to fall back into negative territory again.
The France real GDP data showed a 1.2% gain in consumer spending while business investment jumped by 1.6% - helping lift overall investment growth to the strongest level since Q4 2011. However, a short-term tax break introduced in France likely had an impact here – so we perhaps should not draw too much from this jump at this stage.
We certainly wouldn’t view the GDP data reports as some sign that the divergence between the US and the euro-zone economically has come to an end. As ECB President Draghi highlighted in his press conference this month, the divergence on the policy side due to macro-economic differences would be in place for some time.
The biggest difference that justifies that is on the inflation side – with core inflation in the US at 2.1% in Q1, above target while the targeted rate of the ECB – overall annual inflation – is set to fall back into negative territory in the data released this morning. The rates market shows a level of 2-year spread that is likely for now to keep the EUR/USD rate in its current 1.1000-1.1500 range. We still favour a breach of that range to the downside but that’s a story for later in the year.”
Key Quotes
“That means the euro-zone data, released later this morning may also now come in stronger than the expected 0.4% gain. This will no doubt be used by ECB Council members as evidence that the monetary stance adopted by the ECB is helping to lift real GDP growth.
Still though, overall growth levels remain subdued at annual growth rates well below 2.0% (France annual real GDP growth actually slowed from 1.4% to 1.3%) and that to date has not been enough to lift underlying inflation. We will also get the advance estimate for annual inflation from the euro-zone this morning and the annual rate is expected to fall back into negative territory again.
The France real GDP data showed a 1.2% gain in consumer spending while business investment jumped by 1.6% - helping lift overall investment growth to the strongest level since Q4 2011. However, a short-term tax break introduced in France likely had an impact here – so we perhaps should not draw too much from this jump at this stage.
We certainly wouldn’t view the GDP data reports as some sign that the divergence between the US and the euro-zone economically has come to an end. As ECB President Draghi highlighted in his press conference this month, the divergence on the policy side due to macro-economic differences would be in place for some time.
The biggest difference that justifies that is on the inflation side – with core inflation in the US at 2.1% in Q1, above target while the targeted rate of the ECB – overall annual inflation – is set to fall back into negative territory in the data released this morning. The rates market shows a level of 2-year spread that is likely for now to keep the EUR/USD rate in its current 1.1000-1.1500 range. We still favour a breach of that range to the downside but that’s a story for later in the year.”