eurozone economic watch · eurozone | growth gained momentum in 1q19, but trending to more moderate...
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BBVA Research – Eurozone Economic Watch | May 2019 / 1
Eurozone
Economic Watch
May 2019
BBVA Research – Eurozone Economic Watch | May 2019 / 2
Eurozone | Growth gained momentum in 1Q19, but trending to
more moderate pace amid increasing downward risks
Growth in the Eurozone surprised on the upside during 1Q19, especially in Italy and Germany, likely
related to fading negative one-off effects in previous quarters and the positive effect on mild winter.
Beyond volatility, there are signs of a more protracted weakness in the industrial sector linked to
structural factors (automobiles) and slowing global demand.
Hard data up to March point to domestic demand as the main driver of growth, while the support of net
exports should be small with differences across countries. Retail sales grew at steady robust rate,
supported by the resilience of consumers’ mood and improving labour market. The better performance of
exports to other EU countries offset the decline of those to Asia, raising doubts about foreign support
and the sustainability of the improvement in the industrial sector.
Soft data up to May show some stabilization but at lower levels than in 1Q19 and indicate that growth
could lose some steam in 2Q19. Higher uncertainty is taking its toll also on services sentiment.
Our MICA-BBVA model now projects Eurozone GDP to slow slightly to around 0.3% QoQ in 2Q19. This
combined with positive surprise in 1Q19 could lead to a slight upward bias to our forecast of growth at
1% in 2019, but we remain cautious due to gloomier leading indicators and trade threats.
Core inflation increased in April due to the effect of Easter on service prices, but it is likely to remain very
subdued. In addition, inflation expectations continue to slip, so the ECB will remain very cautious and
debating further measures if necessary.
Risks are tilted to the downside, mostly related to political events. The risk of a no-deal Brexit is
increasing while US trade disputes are heightening, not only with China but also with the EU.
BBVA Research – Eurozone Economic Watch | May 2019 / 3
GDP growth surprised on the upside in 1Q19, gaining momentum across the
Eurozone…
Source: Eurostat and BBVA Research
GDP and expenditure contribution by country(%QoQ, pp)
The stronger growth was underpinned by domestic demand, both private consumption and investment, while
net exports weighed on activity except in Germany
-0.2
-0.1
0.0
0.1
0.2
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
1Q
18
2Q
18
3Q
18
4Q
18
1Q
19
1Q
18
2Q
18
3Q
18
4Q
18
1Q
19
1Q
18
2Q
18
3Q
18
4Q
18
1Q
19
1Q
18
2Q
18
3Q
18
4Q
18
1Q
19
Ge
rma
ny
Fra
nce
Italy
Sp
ain
Germany France Italy Spain Diff. GDP relative to2008
Final Consumption GFCF Inventories Net Exports
Diff. GDP level relative to 2008 GDP q/q % change Euro GDP QoQ
BBVA Research – Eurozone Economic Watch | May 2019 / 4
… but economic momentum seems to trend to a more moderate pace
GDP and MICA forecasts(%, QoQ)
Source: Eurostat and BBVA Research
GDP, contribution by components(%, QoQ)
Our MICA-BBVA model now projects GDP to slow slightly to around 0.3% QoQ in 2Q19. Better-than-expected
performance in 1H19 would put a slight upward bias to our growth forecast at 1% in 2019, but we remain
cautious due to gloomier leading indicators and increasing uncertainty over the trade outlook
-1.5
-0.5
0.5
1.5
2.5
2Q
15
3Q
15
4Q
15
1Q
16
2Q
16
3Q
16
4Q
16
1Q
17
2Q
17
3Q
17
4Q
17
1Q
18
2Q
18
3Q
18
4Q
18
1Q
19
2Q
19
Private consumption Public consumption
GFCF Inventories
Net Exports Real GDP
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
Jun-1
5
Dec-1
5
Jun-1
6
Dec-1
6
Jun-1
7
Dec-1
7
Jun-1
8
Dec-1
8
Jun-1
9
CI 20% CI 40% CI 60% Observed
BBVA Research – Eurozone Economic Watch | May 2019 / 5
Robust growth of retail sales in 1Q19 and the resilience of consumer
confidence suggest private consumption will remain the main driver of growth
Retail sales and total wage bill(%YoY; pp)
Source: Eurostat and BBVA Research
Retail sales and consumer confidence(%QoQ, level)
Retail sales grew steadily at 0.7% QoQ over last year, supported by the improvement in the labour market
and low inflation. But despite the resilience of consumer mood, it is unlikely that private consumption gain
further momentum ahead
0.9
0.5
-0.2
0.7
0.0
0.7
1.0
0.4
0.8
0.5
0.3
0.1
0.9
-0.1
0.80.7
-12.0
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
1.2
Ma
y-15
Aug
-15
Nov-1
5
Fe
b-1
6
Ma
y-16
Aug
-16
Nov-1
6
Fe
b-1
7
Ma
y-17
Aug
-17
Nov-1
7
Fe
b-1
8
Ma
y-18
Aug
-18
Nov-1
8
Fe
b-1
9
Ma
y-19
Retail sales (QoQ) Consumer confidence
Retail Sales (% QoQ)
ConsumerConfidence -3
-2
-1
0
1
2
3
4
1Q
13
2Q
13
3Q
13
4Q
13
1Q
14
2Q
14
3Q
14
4Q
14
1Q
15
2Q
15
3Q
15
4Q
15
1Q
16
2Q
16
3Q
16
4Q
16
1Q
17
2Q
17
3Q
17
4Q
17
1Q
18
2Q
18
3Q
18
4Q
18
1Q
19
Real compensation Employees
Total wage bill Retail sales
BBVA Research – Eurozone Economic Watch | May 2019 / 6
Despite activity slowdown, the steady growth in employment resulted in a
declining unemployment rate to 7.7% in March
Annual unemployment change by gender and age(Million)
Source: Eurostat and BBVA Research
Unemployment rate by country(%)
Unemployment in the Eurozone drops by 0.1pp, mainly due to better perfromance in Italy and (to a lesser)
extent in Spain
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
Mar-18 Feb-19 Mar-19
Eurozone Germany France Italy Spain
-1.8
-1.6
-1.4
-1.2
-1.0
-0.8
-0.6
-0.4
-0.2
0.0
Ma
r-1
6
Jun-1
6
Sep
-16
Dec-1
6
Ma
r-1
7
Jun-1
7
Sep
-17
Dec-1
7
Ma
r-1
8
Jun-1
8
Sep
-18
Dec-1
8
Ma
r-1
9
Women 25-74Y Men 25-74Y Men < 25Y
Women < 25Y Total
BBVA Research – Eurozone Economic Watch | May 2019 / 7
Exports grew again in March and have maintained a stable pace since mid-
2018
Exports by destination(%YoY; pp)
Source: Eurostat and BBVA Research
Trade balance(€bn; %GDP)
Exports to other EU countries offset the moderation of those to China and the fall of sales to other Asian
countries. There are increasing concerns on the trade war and thus on demand from Asia
-6
-4
-2
0
2
4
6
1T
15
2T
15
3T
15
4T
15
1T
16
2T
16
3T
16
4T
16
1T
17
2T
17
3T
17
4T
17
1T
18
2T
18
3T
18
4T
18
1T
19
Intra UE EE.UU.China Asia Ex. ChinaLatAm Resto del MundoExportaciones totales
0.8
0.7
0.9 0.9 0.9 0.9 0.9
0.8 0.8
1.00.9
0.8
0.6
0.5
0.60.7
0.0
0.2
0.4
0.6
0.8
1.0
1.2
140
150
160
170
180
190
200
Ma
r-15
Ju
n-1
5
Se
p-1
5
Dec-1
5
Ma
r-16
Ju
n-1
6
Se
p-1
6
Dec-1
6
Ma
r-17
Ju
n-1
7
Se
p-1
7
Dec-1
7
Ma
r-18
Ju
n-1
8
Se
p-1
8
Dec-1
8
Ma
r-19
Exports Imports Trade Balance (% GDP)
Exports, imports
Trade Balance (%GDP)
BBVA Research – Eurozone Economic Watch | May 2019 / 8
The downward trend in industrial production seems to have halted…
IP capital equipment, investment in M&E and
capacity utilization(%QoQ; %)
Source: Eurostat and BBVA Research
Industrial production(Level, % QoQ)
Beyond volatility, industrial production increased in 1Q19 after falling in 2H18, driven by the rebound in
capital and durable goods. This suggests that investment could increase further in coming quarters.
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
96
98
100
102
104
106
108
110
Ma
r-1
5
Jun-1
5
Sep
-15
Dec-1
5
Ma
r-1
6
Jun-1
6
Sep
-16
Dec-1
6
Ma
r-1
7
Jun-1
7
Sep
-17
Dec-1
7
Ma
r-1
8
Jun-1
8
Sep
-18
Dec-1
8
Ma
r-1
9
IP (2015=100)
IP (level)
IP (% QoQ)
80
80
81
81
82
82
83
83
84
84
85
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
Apr-
15
Jul-1
5
Oct-
15
Jan-1
6
Apr-
16
Jul-1
6
Oct-
16
Jan-1
7
Apr-
17
Jul-1
7
Oct-
17
Jan-1
8
Apr-
18
Jul-1
8
Oct-
18
Jan-1
9
Apr-
19
GFCF: M&E (%QoQ) IP Capital (%QoQ)
Capacity Utilisation (%)
Capacity utilization (%)
Inv. M&E; IP
BBVA Research – Eurozone Economic Watch | May 2019 / 9
… but manufacturing confidence suggests that the weakness on the sector
will persist, possibly spreading onto services
EC confidence survey(level)
Source: Eurostat and BBVA Research
PMI and GDP (level, %QoQ)
The EC and PMI surveys suggest that the decline in manufacturing confidence could have reached bottom,
while higher uncertainty is taking its toll also on expectations on the service sector
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
47
49
51
53
55
57
59
61
63
ma
y.-1
7
ag
o.-
17
no
v.-1
7
feb
.-18
ma
y.-1
8
ag
o.-
18
no
v.-1
8
feb
.-19
ma
y.-1
9
Real GDP (%QoQ) PMI
Services PMI Manufacturing PMI
PMIs llevel GDP (%QoQ)
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
80
85
90
95
100
105
110
115
120
Apr-
13
Oct-
13
Apr-
14
Oct-
14
Apr-
15
Oct-
15
Apr-
16
Oct-
16
Apr-
17
Oct-
17
Apr-
18
Oct-
18
Apr-
19
ESI (eje izq) Industrial (eje der.)Consumidor (eje der.) Servicios (eje der.)
BBVA Research – Eurozone Economic Watch | May 2019 / 10
Core inflation increased in April driven by the Easter effect on service prices,
but it will remain at low levels
Inflation swaps 5y5y (%YoY)
Source: Eurostat, Bloomberg and BBVA Research
Inflation contribution of components(%YoY, pp)
Beyond volatility, core inflation is likely to remain at very low levels, while headline inflation will be shaped by
energy prices. In addition, inflation expectations continue to slip despite higher oil prices
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
Ap
r-1
7
Ju
n-1
7
Aug-1
7
Oct-
17
De
c-1
7
Fe
b-1
8
Ap
r-1
8
Ju
n-1
8
Au
g-1
8
Oct-
18
De
c-1
8
Fe
b-1
9
Ap
r-1
9
Services Non-energy industrial goods
Processed food Energy
Unprocessed food HICP (% YoY)
1.2
1.4
1.6
1.8
2.0
2.2
2.4
2.6
2.8
31
-Ma
y-10
30
-Nov-1
0
31
-Ma
y-11
30
-Nov-1
1
31
-Ma
y-12
30
-Nov-1
2
31
-Ma
y-13
30
-Nov-1
3
31
-Ma
y-14
30
-Nov-1
4
31
-Ma
y-15
30
-Nov-1
5
31
-Ma
y-16
30
-Nov-1
6
31
-Ma
y-17
30
-Nov-1
7
31
-Ma
y-18
30
-Nov-1
8
31
-Ma
y-19
BBVA Research – Eurozone Economic Watch | May 2019 / 11
Eurozone
Economic Watch
May 2019
BBVA Research – Eurozone Economic Watch | May 2019 / 12
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