Macro weekly 25 september 2015

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Group Economics

Macro Weekly Resilient to EM weakness

Nick Kounis +31 20 343 5616

25 September 2015 Economic data out of the eurozone and the US suggest that advanced economies are relatively resilient to the weakness in emerging markets so far. Though downside risks from emerging economies were once again underlined by further weakness in China’s industrial sector in September as well as ongoing falls in EM currencies. Meanwhile, the Fed is trying to re-calibrate its message following the adverse reaction to the September FOMC meeting, with Chair Yellen playing down external headwinds and saying that a 2015 lift-off is still on the cards. The return of negative inflation in Japan – and before long the eurozone – means that expectations of further QE from the BoJ and ECB are likely to build. European and US data holding up Financial markets have been fretting about EM weakness for

German Ifo and analyst earnings projections

weeks and the negative sentiment has continued this week.

12m-forward, % yoy

This was fuelled by another poor China PMI reading and

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ongoing falls in EM currencies. Against this background,

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eurozone and US economic data painted a picture of

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resilience. So far domestic fundamentals are offsetting external

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drags.

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% yoy

30 20 10 0

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European business surveys doing well The eurozone composite PMI – which captures business activity across the whole economy – slipped to 53.9 in September from 54.3 in August. This took the indicator only back to its July level and it remains consistent with GDP growth of around 0.5% qoq or 2% on an annualised basis, so

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0 -20

-5 -10

-30 06

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MSCI Europe, earnings projections (lhs)

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Ifo expectations (rhs)

Source: Thomson Reuters Datastream, ABN AMRO Group Economics

not bad at all. Meanwhile, Germany’s Ifo business climate indicator edged up in September from an already high level (to 108.5 from 108.4). It was particularly encouraging that the expectations component jumped to reach its highest reading since April.

Consumer driving growth The US economy’s strength is being driven by buoyant consumer demand. Consumer spending rose by 3.6% in Q2 according to the final estimate. This means it has now grown at

Better profit growth

3.5% or above in 4 out of the last five quarters. This reflects

The expectations component is a good lead indicator of

the ongoing strength of the jobs market as well as record

analysts’ earnings expectations for Europe’s stock-listed

levels of household wealth.

companies 12-months ahead (see chart) as well as overall GDP growth. It therefore suggests that the cyclical upswing is

Housing also supportive

still firmly on track. Indeed, stronger capital spending and

In addition, the US housing market is also supporting

hiring should follow. There were signs of that in this week’s

economic activity. Residential investment surged by 9.3% in

data as well. Annual growth in bank lending to non-financial corporations rose by 0.4% in August, up from 0.3% in July. It is still modest but it has improved a lot recently after months of contraction. US economy riding high

Q2. New home sales jumped to a 7-year high in August, suggesting that the strength in homebuilding will continue. Business catching up Investment in machinery has been a missing ingredient from

On the other side of the Atlantic, US economic growth for Q2

this picture. However, core capital goods shipments are

was revised up another notch. It is now recorded at 3.9%. That

pointing to better times ahead. They were up by 4.2% in the 3-

is partly reflecting a rebound from a particularly weak start to

months to August. Finally, the Markit US manufacturing PMI

the year. Nevertheless, in the four quarters to Q2, the

was stable at 53 in September.

economy expanded by 2.7%, which is above its trend rate.


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