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Eurozone: Investment boom - ING

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Mar 9, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    Teunis Brosens, Senior Economist at ING, suggests that the recent Eurozone GDP details show weakness in consumption and exports.

    Key Quotes

    “Eurostat released the details on Eurozone GDP in the fourth quarter yesterday, and while 4Q seems long gone, these data show some encouraging signs about the Eurozone recovery. In particular, investment was the main growth engine, jumping 1.3% QoQ and taking over the baton from consumption.

    We have long been waiting for a revival of investment, and it finally appears to be happening. Year-on-year investment growth even rose to 3.4% YoY, the highest growth rate since March 2011. This shows that amidst all the gloom and doom emanating from falling confidence indicators in the Eurozone, it is easy to forget that the hard data has so far not been all that bad.

    Household consumption on the other hand decelerated to 0.2% QoQ (1.5% YoY). We think that at least some of the fourth quarter weakness is explained by the mild winter weather, causing lower energy consumption and even denting retail sales (fewer fluffy winter coats). Net exports, which was the main driver of growth between 2011 and 2013, have now become a drag on growth, subtracting 0.6% from the YoY GDP growth rate. The Eurozone is clearly not immune to the slowdown in emerging markets.

    While Germany and France remain, if only because of their size, the main contributors to Eurozone GDP growth, Spain has been leading the pack in the past two quarters. The country, representing just 11% of Eurozone GDP, currently generates a third of Eurozone growth on its own.

    With further weakness in the external environment ahead, it is encouraging to see Eurozone domestic demand proving resilient – at least, in the fourth quarter. Survey indicators notwithstanding, the few hard data we have for 1Q16 do not show a marked deceleration. That said, with confidence indicators pointing south, core inflation weakened to 0.7% YoY and a downward revision to ECB inflation forecasts on the cards, the ECB will on Thursday most likely judge it has sufficient reason to act, presenting a bittersweet cocktail of deposit rate cuts, forward guidance and policy extensions and expansions.”
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