Daily Insight
Group Economics Macro & Financial Markets Research
14 January 2016
Eurozone inflation double-dip Nick Kounis Head of Macro and Financial Markets
•
Research Tel: +31 20 343 5616 nick.kounis @nl.abnamro.com
Arjen van Dijkhuizen Senior Economist
The recent fall in oil prices and softening core inflation will likely push eurozone inflation back into negative territory…
•
…adding to the case for further ECB monetary stimulus
•
Eurozone hard data point to downside risks to Q4 GDP growth
•
Chinese trade data improve, providing some relief on global growth
Tel: +31 20 628 8052 arjen.van.dijkhuizen@nl.abnamro.com
Eurozone inflation set to go negative again Inflation is likely to dip back into negative territory over the next few months. This partly reflects the ongoing sharp fall in oil prices, with Brent falling through USD 30 level. Our base case is for a gradual recovery during the course of the year but this would still see the drag from oil prices on annual inflation intensifying in the coming months. In addition, core inflation may also soften in the near term. Lower oil prices are having second round effects on items in the CPI that have a strong link with energy. There are also signs that low inflation is helping to restrain wage growth. Finally, the upward impact of past falls in the euro are starting to fade. Inflation is set to once again disappoint the ECB, triggering another round of downgrades for its projections. We think this will trigger further monetary stimulus in the coming months. Inflation will move up later in the year If we are right about oil prices, eurozone headline inflation should bounce back into positive territory later in the year after a string of negative readings in the first half. However, core inflation will only recover slowly. Although we expect the economic recovery to continue, stronger growth will take time to generate significant underlying inflationary pressures. Similarly ECB stimulus should push down the euro, but again this will also take time to push up core inflation. Recent eurozone hard data have been disappointing Meanwhile, eurozone industrial production contracted by 0.7% mom in November. Although that followed a 0.8% gain in October, that still left production more or less flat so far in Q4. Recently retail sales have also disappointed and our GDP tracker is currently pointing to stagnating GDP at the end of last year. This points to downside risks to our forecast of 0.4% qoq for Q4 following a 0.3% gain in Q3. We could still see a turn in the data in December and revisions. In addition, surveys of the eurozone economy and
Insights.abnamro.nl/en
2
Daily Insight – Eurozone inflation double-dip – 14 January 2016
unemployment numbers have been upbeat, so these reports are surprising. If GDP does weaken unexpectedly in Q4, it still therefore seems likely that growth would rebound in Q1. More generally, fundamentals are consistent with a firming economic recovery this year.
Chinese import values show early signs of bottoming Growth in values, USD
50 40 30 20 10 0 -10 -20 -30 12
13
% yoy
14 % mom
15
16
Source: Thomson Reuters Datastream
Chinese trade data provide some relief on global outlook And now for some better news…out of China! China’s trade data improved at the end of last year, providing some tentative signs of improvement for global growth prospects. Exports fell by 1.4% yoy, which was clearly better than the average contraction of -6.3% yoy in July-November. In yuan terms, exports even rose in annual terms (+2.3% yoy), the first positive number since June. This may hint at some strengthening of global demand, although the CNY depreciation versus the USD in the last months of 2015 (around 4.5% in August-December) triggered by changes in China’s exchange rate regime also seem to have played a role. Meanwhile, although it is still early days, the improvement of China’s imports so far seems to fit in our base scenario of a cautious global recovery, which partly rests on the assumption that China’s import picture will improve in 2016 after a poor 2015. Total imports fell by 7.6% yoy. This was clearly better than the -14% yoy average for 2015. Also encouraging was the strong pick-up in imports of key commodities, though this most likely also reflects strategic buying. Hence, taking also into account the typical monthly volatility of Chinese trade data and seasonal patterns around year-end, we still have to be careful in drawing too strong conclusions.
3
Daily Insight – Eurozone inflation double-dip – 14 January 2016
Day
Date
Time
Country
Saturday Saturday Sunday Sunday Sunday
09/01/2016 09/01/2016 10/01/2016 10/01/2016 10/01/2016
02:30:00 02:30:00 15/01/2016 15/01/2016 15/01/2016
CN CN CN CN CN
Tuesday Tuesday Tuesday
12/01/2016 12/01/2016 12/01/2016
12:00:00 13:00:00 16:00:00
Wednesday Wednesday Wednesday
13/01/2016 13/01/2016 13/01/2016
Thursday Thursday Thursday Thursday Thursday Friday Friday Friday Friday Friday Friday Friday
Period
Latest outcome
Consensus
CPI - % yoy PPI - % yoy Aggregate financing - CNY bn New yuan loans - CNY bn Money supply M2 - % yoy
Dec Dec Dec Dec Dec
1.5 -5.9 1020.0 708.9 13.7
1.6 -5.8 1150.0 700.0 13.6
US IN US
NFIB small business optimisme - index CPI - % yoy US Job Openings by Industry
Dec Dec Nov
94.8 5.4 5383.0
95.5
95
11:00:00
EC CN CN
Industrial production - % mom Exports - % yoy Imports - % yoy
Nov Dec Dec
0.6 -6.8 -8.7
0.0 -8.0 -11.0
-0.2
14/01/2016 14/01/2016 14/01/2016 14/01/2016 14/01/2016
00:50:00 13:00:00 13:00:00
JP GB GB PL KR
Machinery orders private sector - % mom Policy rate - % BoE size of asset purchase programme - GBP bn Reference rate - % Policy rate - %
Nov Jan 14 Jan Jan 14 Jan 14
10.7 0.5 375.0 1.50 1.50
-7.3 0.5 375.0 1.50 1.44
15/01/2016 15/01/2016 15/01/2016 15/01/2016 15/01/2016 15/01/2016 15/01/2016
14:30:00 14:30:00 14:30:00 14:30:00 15:15:00
US US US US US US US
Retail sales - % mom Dec Prod. prices index - % mom Dec Prod. prices index excl food and energy - % mom Dec Empire State PMI - Manuf. general business conditions - index Jan Industrial production - % mom Dec Univ. of Michigan cons. confidence - index Jan P Business inventories - % mom Nov
0.2 0.3 0.3 -4.6 -0.6 92.6 0.0
0.1 -0.1 0.1 -2.4 -0.2 92.8 0.0
16:00:00
Key Economic Indicators and Events
ABN AMRO
1.50 1.50 0
-3.0 92
Source: Bloomberg, Reuters, ABN AMRO Group Economics (we provide own forecasts only for selected k ey variables and events)
Find out more about Group Economics at: https://insights.abnamro.nl/en/
DISCLAIMER ABN AMRO Bank Gustav Mahlerlaan 10 (visiting address) P.O. Box 283 1000 EA Amsterdam The Netherlands This document has been prepared by ABN AMRO. It is solely intended to provide financial and general information on economics.The information in this document is strictly proprietary and is being supplied to you solely for your information. It may not (in whole or in part) be reproduced, distributed or passed to a third party or used for any other purposes than stated above. This document is informative in nature and does not constitute an offer of securities to the public, nor a solicitation to make such an offer. No reliance may be placed for any purposes whatsoever on the information, opinions, forecasts and assumptions contained in the document or on its completeness, accuracy or fairness. No representation or warranty, express or implied, is given by or on behalf of ABN AMRO, or any of its directors, officers, agents, affiliates, group companies, or employees as to the accuracy or completeness of the information contained in this document and no liability is accepted for any loss, arising, directly or indirectly, from any use of such information. The views and opinions expressed herein may be subject to change at any given time and ABN AMRO is under no obligation to update the information contained in this document after the date thereof. Before investing in any product of ABN AMRO Bank N.V., you should obtain information on various financial and other risks and any possible restrictions that you and your investments activities may encounter under applicable laws and regulations. If, after reading this document, you consider investing in a product, you are advised to discuss such an investment with your relationship manager or personal advisor and check whether the relevant product –considering the risks involved- is appropriate within your investment activities. The value of your investments may fluctuate. Past performance is no guarantee for future returns. ABN AMRO reserves the right to make amendments to this material. © Copyright 2016 ABN AMRO Bank N.V. and affiliated companies ("ABN AMRO").