Spain: Coalition conundrum
The results of general elections on 20 December appear to suggest the end of a bipartisan political environment. Mariano Rajoy’s PP (Partido Popular) won 123 seats in the Congress but failed by 53 seats to achieve an absolute majority. As a result, and in order to form a government, the PP needs to form alliances with other parties with congressional seats. The socialist party (PSOE), the other main traditional party, won only 90 seats, the worst electoral result in its history. Among the new political players, the leftist Podemos won 69 seats and the centrist Ciudadanos 40 seats. With a highly fragmented Congress and wide-ranging policy divergences among the parties it will be difficult to create a strong coalition. Whatever party combination is forged into a coalition, the government will have to deal with a PP-dominated Senate. Despite political uncertainties, the country has recorded solid growth in 2015, with GDP expanding +0.8% q/q in Q3, after +1% q/q in Q2, supported by dynamic domestic demand and low oil prices. Spain will continue to exert a positive momentum to overall Eurozone GDP growth as we forecast it will grow by +3.1% in 2015 and +2.6% in 2016.
Japan: Slowly recovering?
Advanced indicators still point to a fragile outlook. The trade balance in November deteriorated to -JPY379.7bn (+JPY108.3bn in October). Export volumes contracted (-3.1% y/y) due to lower demand from the U.S. and Asia and imports registered a small upturn (+1.6%y/y from -3.8%) as demand for EU goods recovered. Industrial activity gained some traction, with production increasing +1.4% m/m in October (+1.1% in September). Business surveys point to a robust outlook, with manufacturing PMI at 52.5 in December. Meanwhile, policy actions to support growth were announced, including a stimulus package of USD27bn. On the monetary front, the Bank of Japan maintained its easing stance but added some changes including: (i) an extension in the average remaining maturity of the Bank's JGB purchases to 7-12 years (from 7-10) and (ii) supplementary annual purchase of exchange-traded funds (JPY300bn) composed of stock issued by companies that are “proactively making investment in physical and human capital”. EH expects GDP growth of +1.3% in 2016 (from +0.8% in 2015).
France: Fluctuat nec mergitur
Following the terrorist attacks on 13 November, confidence surveys in December understandably showed a sharp fall in the retail and services sectors (-4pts and -2pts, respectively) but they remain strong and point towards further growth in the coming months. The overall index still stands at 101, marginally above the long-term average, as business confidence improved by +1pt in both manufacturing and construction. Meanwhile, consumption fell -1.1% m/m in November, reflecting declines of -4.7% in consumption of textile clothing and -5.6% in spending on energy, although both these result from the mild temperatures recorded in November. Indeed, a better indicator of consumer willingness to purchase is spending on durable goods, which increased by +0.5% m/m and +3.1% y/y. As a result, we believe the current modest downturn is temporary. Even so, Q4 will be less strong than initially expected and we have revised our 2015 and 2016 GDP growth forecasts by -0.1pps, to +1.1% and +1.4%, respectively.
Qatar: Gas guzzler?
Currently weak oil and gas prices are now feeding through to economic data, with official forecasts for economic growth in 2015 halved to +3.7% from June projections of +7.3%, although a rebound to +4.3% is expected in 2016. The government still expects a fiscal surplus equivalent to +1.7% of GDP this year (+1.4% in June) but the budget for 2016 is indicating a deficit for the first time in 15 years (-QAR46.5bn, equivalent to around -2% of GDP). The government intends to maintain high spending on health, education and infrastructure (a combined 45% of total expenditure). EH expects budgetary shortfalls will be comfortably financed through local and international debt issuance and the current account, although deteriorating, will remain in surplus throughout the period to end-2017.