Group Economics
Daily Insight
Macro & Financial Markets Research Aline Schuiling & Maritza Cabezas
Euro economic sentiment high
+ 31 20 343 5606
28 May 2015
Economic sentiment in the eurozone stabilises at high level … … despite a decline in consumer confidence and weaker sentiment in the periphery US residential investment to strengthen this year Revised first quarter US GDP growth to be released on Friday will be weaker, but only for a while
Eurozone’s economic sentiment remains high
Eurozone economic sentiment and GDP growth
Economic sentiment in the eurozone stabilised at 103.8 in
% qoq
May. This is very close to March’s level of 103.9, which was the highest since the middle of 2011. The stabilisation was better than the consensus forecast, which was for a small decline. It was also better than the composite PMI, which edged lower in May. At its current level, sentiment is pointing to a further pick up in GDP growth in the second quarter, which is in line with our scenario for the eurozone economy. Stronger job growth expected
level
120 110 100 90 80 70 60 50 40
1.5 1.0 0.5 0.0 -0.5 -1.0 -1.5 -2.0 -2.5 -3.0 04 05 06 07 08 09 10 11 12 13 14 15 GDP (lhs)
The details of the economic sentiment report show that sentiment in all sectors (industry, retail, services and
Economic sentiment (rhs)
Source: Thomson Reuters Datastream
construction) improved. Whereas consumer sentiment was the only component that edged lower in May. As we already mentioned last week when the flash estimate for consumer sentiment was published, it has nonetheless remained at high levels consistent with robust consumer spending growth. With regard to the outlook for job growth, all sectors besides construction report a rise in expected employment, which adds to the evidence that job growth in the eurozone will strengthen in the coming months. Differences between core and periphery The individual country results for sentiment show that marked improvements were registered in most core eurozone countries. Indeed sentiment rose in Germany, France, the Netherlands, Belgium and Austria. In contrast, in Greece, Portugal and Italy sentiment declined, while in Spain it stabilised. This underperformance of the periphery is probably related to the tensions surrounding Greece. This has lowered investors’ appetite for all countries in the periphery, resulting in lower equity prices and higher government bond yields. That said, Greece, as expected, is the only peripheral country where sentiment has fallen to levels well below the long-term average value of 100, whereas sentiment has remained above this level in Italy, Spain and Portugal.
US residential investment to strengthen this year Housing data released in the past days, suggest that the recovery in residential investment in the US will gain some pace after a harsh winter. The May home builders sentiment index (54) remains above 50 reading, indicating that most builders are optimistic about future conditions. Building permits increased in April, by 10.1% up from -5.5% the previous month, while housing starts jumped to their highest level in seven years. At the same time, the latest loan survey indicates that banks reported having eased lending conditions for a number of categories of residential loans over the past three months on balance. Rising house prices and a strong labour market should lift residential investment after a slow start this year. First quarter US GDP growth weaker, but only for a while We expect that Friday’s GDP growth will be revised down to -0.6% from 0.2% in the previous preliminary estimate, mainly on account of a large drag in net exports and inventory data. Away from this data we expect revisions to be minor and offsetting. The Bureau of Economic Analysis (BEA) is currently reviewing their methodology to estimate GDP data. The outcome of this review will be published on July 30th. The Federal Reserve Bank of San Francisco has looked into the seasonality issue. Its conclusion was that GDP growth appears to be substantially stronger than the BEA initially reported.