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Based on data up to early December, the Q4 2018 Eurozone GDP
nowcast points to economic expansion of 0.3% q/q, a level slightly
below the post- financial crisis trend rate (0.36%). However, given
the prior distortion to growth from the auto sector
emissions-related drag on German output, IHS Markit currently
anticipates the economy will grow by 0.4% q/q.
Survey data continue to soften heading into year end. The
Eurozone Composite PMI dropped in November to its lowest level
for over two years, dragged down by worries over global trade
trends and political worries around Brexit. Business confidence was
at its lowest in nearly four years, whilst separate figures show
consumer confidence at a 20-month low. Although our EZ Economy
Tracker (which uses principal components analysis (PCA) to estimate
a single 'factor' index from the 36 variables used to nowcast EZ
economic output) improved slightly in November, it remains close to
October's 26-month low.
Whilst survey data continue to show a slowdown in
underlying growth, we are keen to see official data
updates for the start of Q4 (especially industrial production) to
assess whether the weakness related to autos production that
impacted on Q3 data proves to be transitory.
Indeed, when observing similar-sized model 'surprises' to the
one seen in the third quarter, growth in the following three-month
period has tended to overshoot the respective nowcast.
And with German car production figures for October showing
strong year-on-year expansion, GDP growth may well be firmer than
is currently being implied by the current nowcast.
However, based on survey data and anecdotal evidence from PMI
panellist respondents, the potential for a strong rebound in the
autos sector is unconvincing. If anything, the underlying growth
trajectory for the industry remains downward: German manufacturers
reported a near stagnation of output in November, the sharpest
reduction in total new orders for four years and a fall in exports
not seen since mid-2013. Moreover, Czech goods producers, who are
sensitive to developments in the autos sector, again commented on
major disruption, with optimism about the future falling to its
lowest level for six years. Panellists also signalled an increasing
likelihood of (previously unexpected) plant shutdowns of major
manufacturer car plants in January.
All of this adds to the uncertainty around the Q4 growth nowcast
for Germany. Whilst currently at 0.2% q/q, IHS Markit estimates
that the autos drag on Germany was around -0.3 ppts on GDP in Q3
leading to considerable upside risk to the current estimate.
Factory orders and industrial production figures out later in the
week will therefore be crucial in better understanding the
potential outcome here (and given the size of the German economy,
at the wider Eurozone level).
Elsewhere, Italian economic output is on course to contract by
-0.1% in the fourth quarter. That would push the country into
technical recession. Weakness remains most concentrated in the
manufacturing economy, where operating conditions are deteriorating
to the greatest degree for just under four years. Political
uncertainty is exacerbating underlying demand weakness, according
to PMI panellists.
By comparison, PMI data in France and Spain are holding up
relatively well, with the implied rates of expansion for 'soft'
data little changed from Q3's respective official estimates (0.4%
and 0.6% respectively).
Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
