GDP contracted by -0.2% q/q in Q1—slightly below consensus expectations (-0.1%) and the sixth consecutive quarterly contraction—and it was broad based, with Spain (-0.5%), Italy (-0.5%) and France (-0.2%) contracting and only Germany (+0.1%) of the larger economies recording expansion. Weakness was also reflected in retail sales, which contracted by -0.1% mo/mo in March, suggesting depressed private consumption. EH does not expect a strong improvement in demand as labour markets remain weak (March unemployment 12.1%) and business confidence remains at a low level, with the composite PMI continuing to signal contraction. A (slight) positive sign came from industrial production, which increased by +1% mo/mo in March, suggesting that business activity may gradually improve over the course of 2013. EH forecasts a slight recovery in H2, with growth stabilising at a low level because of weak fundamentals, but expects GDP to contract by -0.3% for full-year 2013.
China: Moderate growth
Growth in industrial output in April picked up to +9.3% y/y (+8.9% in March) but was below consensus forecasts and fixed asset investment growth in January-April slipped to +20.6% y/y, still driven mainly by residential property and infrastructure, with manufacturing lagging. Retail sales growth held up at +12.8% y/y (+12.6% in March) and credit growth accelerated, with net new lending at its highest April level, which should be supportive of future economic growth. Total social financing also accelerated, to +21.8% y/y (+21.1% in March), the highest since June 2011. Growth of exports and imports improved in April, to +14.7% y/y and +16.8%, respectively. April Inflation picked up to +2.4% y/y (+2.1% in March) but was driven by food prices (vegetables) with non-food inflation at +1.8%. Overall, April indicators point to continued—if relatively more moderate—growth (EH forecasts +8% in 2013) and probably will not prompt further policy easing, at this stage.
US and Canada
Recent data and outlook In the US, April retail sales increased by +0.1% mo/mo, helped by a +1% increase in auto sales, but there was a -4.7% fall in gasoline sales due to a sharp price decline. Stripping out autos and gasoline, sales increased by a healthy +0.6%. On a y/y basis, auto sales were up a steep +7.7%, masking weakness in all other retail sales, which were up only +2.8%. Notions that the Fed might taper its bond purchases later this year have driven up the 10-year Treasury yield 30bps to 1.95% in just 10 trading days. Although the federal debt ceiling may be hit technically by 19 May, recently-increased tax revenues and temporary measures will now help the Treasury avoid that ceiling, in practice, until at least September. In Canada, April employment increased by a modest 12,500 (+0.9% y/y), while unemployment fell to a still high 7.2%. Continued weakness in employment and exports may pressure the BOC to lower rates and weaken the overvalued CAD.
Germany: Strong March indicators
New orders received by the industrial sector continued to increase in March, up by a surprisingly robust +2.2% mo/mo, following a similar rate of expansion in February and a fall of -1.6% in January. In March, external demand (+2.7%) increased at a more rapid rate than domestic demand (+1.8%), providing some evidence of a cautious recovery in the eurozone (+4.2% after +1.2% in February). Moreover, industrial production increased by +1.4% in March after +0.8% in February, including higher output in the
car industry (+7%), computers and electronics (+6.3%) and the ship and aircraft industry (+4.4%), while printing (-1.7%) and machinery (-0.6%) recorded lower figures. Construction output continued to contract, falling by -3.1% (-1.6% in February).