Daily Insight
Group Economics Macro & Financial Markets Research Nick Kounis & Arjen van Dijkhuizen
QE helping eurozone growth
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9 September 2015 • • •
Eurozone GDP growth was revised up in Q1 and Q2, painting a picture of ongoing recovery The ECB’s QE and measures to repair the credit channel have contributed to this picture China trade continues to shrink – authorities likely to allow further moderate CNY weakness
What has QE ever done for us?
Eurozone economy in recovery mode
Speculation has risen recently that the ECB will step up its QE
% qoq annualised rates
programmes. This is a topic we have discussed at length in
2.5 2.1
previous editions of this publication. A typical (and understandable) reaction to this is that all this simply means
2.0
that the initial QE programme has been unsuccessful and what
1.5
1.6
is the point of doing more. Tuesday’s revised eurozone GDP
1.0
data provided some answer to these skeptical voices: QE
1.0
seems to have contributed to better economic growth rates.
0.5
Eurozone economic growth revised up in Q1 – Q2
1.4
0.8 0.3
0.0 Q1 14
Q2 14
Q3 14
Q4 14
Q1 15
Q2 15
Eurozone GDP growth was revised up by 0.1 percentage points in each of the previous two quarters, to 0.4% qoq in Q2
Source: Thomson Reuters Datastream, ABN AMRO Group Economics
and 0.5% in Q1. In annualised terms this equates to 1.4% and 2.1% respectively. Given that eurozone trend growth is likely a little above 1%, this is consistent with an economy growing about its modest potential. This view is supported by falling unemployment and signs that core inflation has bottomed out. QE has supported the recovery Economic growth has picked up since the first half of last year, when the economy was growing at below-trend rates. The ECB’s monetary easing – including QE – as well as other
Chinese imports continue to disappoint… Meanwhile, Chinese foreign trade continued to disappoint. Imports contracted by -13.8% yoy in August (July: -8.1% yoy). This marked the 10th consecutive month of contraction. This poor performance reflects weak domestic demand in the first place, but also lower import (including commodity) prices driving down import values. Imports from the EU were particularly weak, contracting by -21.7% yoy in August.
policies to get bank lending going – have contributed to better economic growth. Although QE was only announced in January of this year and implemented in March, the effects started to kick in well before that as financial markets anticipated the policy. This pricing in seems to have become really significant around a year ago after ECB President Draghi’s speech at Jackson Hole.
… but exports did slightly better than expected Chinese exports in August contracted for the second month in a row (-5.5%), but less sharply than in July (-8.3% yoy). While lower export prices drive down export values, the ongoing contraction suggests that demand remains subdued. Exports to the EU did relatively poorly, contracting by 7.5% yoy (Germany -9.9%), although Chinese and EU trade figures do
Lower interest rates and euro The resulting decline in market interest rates across the curve also pushed down bank lending rates, especially in the periphery. In addition, the euro fell sharply. Bank lending conditions have also eased. Of course other important factors have also contributed to the recovery, such as the fall in oil prices, and the virtual ending of austerity.
not always seem to match. This also shows that past strength of the yuan may still be a negative. The recent devaluation is not enough to significantly change this. In fact, the authorities intervened to stabilise the yuan after their initial devaluation last month. We expect that after an initial stabilisation phase, the authorities will allow some more CNY weakness, although we do not expect a sharp depreciation.