The Eurozone GDP figure released on Tuesday, could direct ECB policy in 2018
Tuesday morning is an incredibly busy session for high impact economic calendar releases. Before moving onto the key release of the day; Eurozone GDP, it’s essential that we quickly cover all the other releases which occur on, or before 10:00am GMT.
Germany’s latest GDP figure is published, expected to come in at 2.3% YoY growth in Q3, this would represent an improvement from the 2.1% recorded in Q2. If matched by solid growth when the wider Eurozone GDP figure is published, the figure could provide confidence for the Eurozone’s fiscal and monetary policy makers, to make adjustments in 2018. After suffering a torrid time over recent years, Italy is also showing signs of a strong recovery; GDP is forecast to come in at 1.7% for Q3, up from 1.5% in Q2. As a leading manufacturing and exporting economy, with banking also playing a significant role, Italy’s contribution to Eurozone growth should not be overlooked.
The U.K. economy will come under the microscope on Tuesday as the latest inflation figures are released, the most prominent reading is the CPI metric. The expectation is that CPI will have risen to 3.1% YoY in October, from the 3% recorded for September. The U.K. central bank the BoE raised base rates by 0.25% to 0.5% earlier this month (November 2nd), in an attempt to counter inflationary pressures. They’d anticipated the pound rising versus its peers with an interest rate rise, in order to mitigate importing inflation.
However, the pound failed to rise, given that the base rate rise was already priced in, due to the forward guidance previously issued and the accompanying BoE narrative, which suggested that the 0.25% rise would be a one off; the rise wouldn’t signal a firing gun for the base rate to be systematically raised in 2018. Input inflation for the U.K. is forecast to reduce dramatically from 8.4% to 4.7%, this is also a figure analysts should pay close attention to, as combined with the CPI metric, it indicates if U.K. imported inflation pressures are moderating.
As we move onto further Eurozone data the latest ZEW surveys for Germany and the Eurozone are delivered for the current situation and economic situation, whilst a fascinating gathering of central bank chiefs takes place in the form of an ECB panel; Yellen, Draghi, Kuroda and Carney, who meet and speak in Frankfurt.
Our breathtaking morning of fundamental releases for Europe, closes off as this meeting is underway, with the release of the latest Q3 figure for Eurozone GDP. The expectation is for the Q3 figure to record 0.6% growth, with the YoY figure maintaining an impressive growth figure of 2.5%. If Germany, Italy and the Eurozone print encouraging GDP growth figures, then analysts and traders may deduce that Mario Draghi and the ECB now have the necessary ammunition to begin a more aggressive tapering of the current asset purchase programme.
Moreover, consideration may be then given to easing the single current bloc zone off its zero interest rate policy. Naturally, such decisions are unlikely to be voiced by Draghi at the speech and conference with his fellow central bankers, but it’s highly likely that if the trio of GDP figures are strong, then the question will emerge. With the USA Fed rate likely to rise in December, when the FOMC meet for the last time in 2017 and the U.K. BoE also raising rates, the question remains “how long can the ECB avoid following suit?” However, would a slightly stronger euro hurt the current economic growth, being enjoyed by the region?
The day ends with Japan’s latest GDP figure being released. Currently at 2.5%, the forecast is for a fall to 1.5% for Q3. Whilst this would represent a significant fall, any effect on yen may be muted, if the fall has already been priced in by the markets.
EUROZONE KEY ECONOMIC METRICS
• Inflation rate 1.4%.
• Govt. debt v GDP 89.2%.
• GDP annual growth rate 2.5%.
• Unemployment rate 8.9%.
• Interest rate 0.0%.
• Composite PMI 56.
• Retail sales growth YoY 3.7%.
• Household debt v GDP 58.5%.
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