Poland: Robust growth for now, watch out for fiscal reforms
Q3 real GDP growth picked up to +0.9% q/q (+0.8% in Q2) and +3.5% y/y (+3.3% in Q2). Growth remained broad-based, with private consumption continuing to rise by a robust +3.1% y/y in Q3 and public spending up by +2.7% y/y (+2.5% in Q2) while fixed investment eased to a still healthy +4.6% y/y after it surged by an average +8.8% in H1. External trade activity moderated somewhat, with exports rising by +3.9% y/y (+4.8% in Q2) and imports by +3.1% (+4.5% in Q2), so that net exports contributed +0.4pps to Q3 growth. Euler Hermes expects the momentum will continue and forecasts full-year growth of around +3.5% this year and next. Potential downside risks to growth could arise from a change in economic policy direction. The newly-elected conservative PiS government, the first single-party administration since 1989, announced expensive increases in welfare spending. The funding is still unclear, although some tax increases have also been proposed. If the PiS chooses a path of rapid fiscal loosening, the budget deficit, which has just fallen below -3% of GDP this year, may soon rise again, with potential negative effects on investor confidence and economic growth beyond 2016.
U.S.: Strength in job creation, construction & services
The November employment report was strong with +211,000 jobs created, above expectations of +190,000 and with revisions to the previous two months of +35,000. Job gains were widespread, with notable strength in construction. Unemployment remained at 5%, the participation rate increased for the first time since May, gaining +0.1pps to 62.5%, and wages were up +2.2% y/y. Combined with Fed Chair Yellen’s Congressional testimony, the employment report suggests that interest rates will now be edged up next week rather than in 2016. Meanwhile, the November ISM non-manufacturing index, at 55.9, remained above the level signalling expansion, despite falling -3.2 points; 12 of 18 industries improved and nine of ten components are above 50. The October trade deficit (goods and services) deteriorated by -3.4% m/m as exports fell -1.4% (-6.9% y/y) and weak oil prices held down imports (–0.6%, -5.2% y/y). Factory orders gained +1.5% m/m in October, but an important component and close proxy for business spending gained +1.3% (+0.4% y/y), the first positive reading in nine months.
UK: No happy days for the manufacturing sector
Manufacturing output has contracted since Q1 2015 and remains -7% below the Q1 2008 peak. The first Q4 reading does not point to a much better outlook as output contracted by -0.1% y/y in October. Indeed, although above the long-term average since 2014, capacity utilisation rates fell in Q4 2015 (to 80.4 from 82.6). Although financing conditions remain accommodative, anticipation of a rise in BoE key interest rates in Q2-Q3 2016 is exerting upside pressure on the GBP and remains an important drag on competitiveness (notably compared with the EUR). The Manufacturing PMI deteriorated in November, but remained in expansionary territory. The survey shows continuing downside pressures on selling prices and this is putting pressure on company turnover and profitability. In contrast, the services sector (80% of value added) is recovering strongly, mainly financial services (+15% above the pre-crisis peak). We expect GDP growth will slow to +2.1% in 2016 (+2.4% in 2015) and to +1.9% in 2017. Brexit fears weigh on growth prospects as investment decisions may be delayed by increasing uncertainties.
Sub-Saharan Africa: Cherry-picking required
The Africa Rising story is closely correlated to that of China; the latter is the region’s largest bilateral trade partner. The current economic slowdown in China is therefore having an impact on the region and the main channels are through direct trade, investment and, more markedly, through partly-associated lower international commodity prices. So far, Chinese imports of African-sourced goods appear to be holding up in volume terms, although not in value. Next year is likely to reveal a similar pattern. However, while the region as a whole is negatively affected, there are marked differences at a country level. Not all resource-rich African countries are severely affected; oil and base metal exporters including Angola, Nigeria, Sierra Leone, South Africa and Zambia face challenging times but soft-commodity exporters (and some oil importers) including Côte d’Ivoire, Ethiopia and Mozambique appear less exposed. Beijing pledged USD60bn in investment at the recent 6th Forum on China-Africa Co-operation. So Africa is still rising but those seeking commercial interests need to be ever selective.