Q3 real GDP growth was confirmed at +0.3% q/q, after +0.4% in Q2. The Q3 expenditure breakdown reveals a reversal of Q2 developments, with domestic demand regaining the role as key growth driver. Private consumption increased by +0.6% q/q (+0.1% in Q2) and government consumption surged by +1.3% q/q (+0.7% in Q2). However, fixed investment remained disappointing, declining by -0.3% q/q (-0.4% in Q2), but inventories added +0.2pps to Q3 growth (-0.3pps in Q2). Exports grew by just +0.2% q/q (+1.8% in Q2) while imports picked up to +1.1% q/q (+0.5% in Q2) so that net exports subtracted -0.4pps from Q3 growth (+0.6pps in Q2). Meanwhile, the Ifo Business Climate Index improved to a 17-month high of 109.0 in November (108.2 in October), driven by increases in both the current situation and the expectation components. The Ifo Index’s improvement is accompanied by advances in other leading indicators such as the manufacturing PMI and the ZEW Index in November, indicating a robust outlook. Euler Hermes expects full-year GDP growth of +1.5% in 2015 and acceleration to +1.8% in 2016, supported by additional public sector spending related to the refugee influx.
Argentina: A new era
Mauricio Macri of the centre-right ‘Cambiemos’ party and mayor of Buenos Aires won the presidential elections last Sunday, with 51.6% of the vote. This marks a significant political development after 12 years of a ‘Kirchnerismo’. The new president, who will assume office on 10 December, vows to lift trade restrictions and capital controls, consolidate public finances and build a better framework for inflation management. He is generally perceived by investors as more business-friendly and better able to negotiate with the debt holdouts. The economic policy adjustments that are necessary will have short-term negative consequences, with a strong ARS (peso) depreciation and less public and monetary support, which could lead to a fall in output in 2016. Moreover, President-in-waiting Macri’s coalition does not command an absolute majority in Congress (it holds only 20% of seats in the Senate and less than 40% in the Chamber of Deputies). As a result, legislating some of the most ambitious reforms is likely to prove challenging.
Eurozone: PMI confirms growth trends
The November composite PMI surprised positively, surging +0.5pts to 54.4, powered by expansion both in services and manufacturing. Services showed the strongest increase in new business since May 2011. Growth in new orders fuelled the expansion in industrial production, whereas employment growth accelerated in both sectors. In Germany, new business supported growth in the composite PMI, which accelerated to a three-month high and the services index reached a 14-month high after increasing +1.1pts. An improving manufacturing PMI is consistent with the latest IFO survey and bodes well for the remainder of the year. In France, the manufacturing PMI deteriorated, with contraction in new export orders (see also below). Meanwhile, growth in Spain and Italy is set to increase markedly. For the Eurozone, the higher average composite PMI in October and November compared with Q3 (52.4 against 52.2) confirms our Q4 GDP growth forecast of +0.3% q/q. We expect an increase in the ECB QE programme at the turn of the year, which will provide more support to this still timid recovery.
South Africa: Stuck in a low growth environment?
Recession was avoided in Q3, with GDP increasing +0.7% q/q annualised, after contracting by -1.3% in Q2. However, the rebound was below expectations and masks a general economic deterioration, buffeted by industrial disputes, power shortages, reduced hard currency earnings because of weak commodity prices (platinum, copper and coal, as well as gold) and negative emerging market sentiment in general. SARB, the Central Bank, forecasts +1.4% GDP growth for the full year, which would be the lowest since the 2009 recession. Last week, SARB increased the key policy interest rate by +25bps to 6.25%, thereby signalling its commitment to inflation targeting and price stability, rather than growth concerns. Moreover, fiscal spending is relatively restrained, partly in an attempt to keep the country’s investment status. With structural bottlenecks, a generally weak external environment and little scope for policy boosts, EH expects annual GDP growth of +1.5% or below in 2015 and with a cap at around +2% up to end-2017, compared with an annual average +3% in the ten-year period to end-2014.