Europe Week Ahead: German Ifo, EZ PMI, ECB BLS, UK GDP
You are missing trading opportunities:
- Free trading apps
- Over 8,000 signals for copying
- Economic news for exploring financial markets
Registration
Log in
You agree to website policy and terms of use
If you do not have an account, please register
The big question in terms of European data next week is whether PMI indices can sustain their recent improving trend, and at what pace. We see good reasons to expect a further, moderate and uneven increase in July flash PMIs.The cyclical momentum has remained fairly supportive in the manufacturing sector at least, as reflected in June PMI forward-looking subcomponents. Improving regional surveys in the US are another piece of evidence suggesting global business sentiment could rebound in July. Meanwhile the slower pace of fiscal adjustment in Europe is still expected to translate into higher The big question in terms of European data next week is whether PMI indices can sustain their recent improving trend, and at what pace. We see good reasons to expect a further, moderate and uneven increase in July flash PMIs. The cyclical momentum has remained fairly supportive in the manufacturing sector at least, as reflected in June PMI forward-looking subcomponents. Improving regional surveys in the US are another piece of evidence suggesting global business sentiment could rebound in July. Meanwhile the slower pace of fiscal adjustment in Europe is still expected to translate into higher services PMIs in coming months. Italy and Germany were some notable exception to this improving picture last month, so it will be important to see if some catch-up occurs in July. On balance, we forecast the Eurozone composite PMI to edge a few tenths higher (from 48.7 to 49.3), coming closer to the 50 threshold eventually.
The German IFO index is likely to record further gains in the near future despite weaker (backward-looking) economic indicators of late. ZEW current conditions have remained resilient in the wake of volatile markets and political woes in the periphery, and the same can be expected from (less volatile) IFO components. Exogeneous risks remain, including a sharper-than-expected slowdown in Chinese growth in particular, but at some point Germany should benefit as well from the tentative recovery in other Eurozone member states. We forecast the IFO to reach a 4-month high in July, at 106.4.
The ECB will publish its Bank Lending Survey (BLS) for Q2 next week. The latest BLS revealed that Eurozone banks expected a further small improvement in credit conditions for households in Q2 and a stabilisation in credit standards on loans for companies. The timing of the survey however may play a key role this time, letting room for negative surprises. Indeed, the survey will have been conducted in the final week of June and the beginning of July i.e. during the period of Fed-related tensions on financial markets. Higher costs for funding may have impacted negatively the answers for prospective credit conditions. Meanwhile, renewed political tensions in the periphery (Greece, Portugal and more recently Spain) were likely another key factor to have weighed on answers. At the same time, increased evidence that some Eurozone countries are escaping recession earlier than thought should have provided some mitigating effect.
We have revised upwards our estimate for Q2 UK GDP growth to 0.5% QoQ (1.3% YoY) from 0.1% QoQ initially in line with PMI-based estimate.Our indicator based on available hard data points to a modest downside risk. As usual, the preliminary estimate of GDP growth will provide us with the expenditure breakdown by sectors only where we expect the services sector to have been the major contributor to growth (0.4pp) while industrial production was likely a more modest contributor (0.1pp). In terms of expenditure breakdown, household consumption’s growth likely accelerated as suggested by the strong growth in retail sales. Furthermore, inventories’ rebuilding likely provided a significant boost to growth after having contracted severely in the previous quarter. We expect negative contribution from net trade on the account of higher imports and still weak exports.
source ...