More Evidence That European Growth Is Slowing

October 30, 2018

The first reported estimate of third-quarter GDP growth in the euro area was a lower-than-forecast 0.2% quarter-on-quarter uptick, which is only half as much as the pace in the first two quarters of this year. On-year growth slowed to 1.7% from 2.2% in the second quarter and 2.8% in the summer quarter of 2017.

Italian GDP stagnated last quarter, the first non-positive growth rate since 4Q14, and this depressed the year-on-year growth rate to 0.8%, lowest since the spring of 2015. In other Italian news, business sentiment fell to a reading of 102.6 in October from 103.6 in September and 105.2 in both June and July. The retail sector took the biggest hit, but manufacturing sector sentiment also weakened. Consumer confidence in Italy rose this month, however.

Spanish retail sales declined 0.4% on month and 0.9% on year in September. That’s the largest 12-month decline in a string of five consecutive months with lower sales than a year earlier.

On-year growth in Portuguese retail sales of 1.3% in September was the smallest increase since April, and industrial production in that economy was lower than a year before for a fifth straight month. Consumer confidence in October (-1.1) had a sub-zero reading for a third straight month.

Norwegian retail sales contracted 0.7% in September, dampening its on-year advance to a 2-month low of 0.7%.

French consumer spending dropped 1.7% on month and 1.5% on year in September. However, French on-year GDP growth slipped to 1.5% last quarter from 1.7% in 2Q, 2.1% in 1Q, and 2.8% in the final quarter of 2017. However, on-quarter growth doubled to 0.4% as consumption, investment, and exports accelerated.

On-year growth of German jobs of 1.25% in July-August, was slower than 1.4% in the second quarter and 1.5% in 1Q. However, the German unemployment rate held steady near a 38-year low.

Switzerland’s index of leading economic indicators fell 2.2% in October to a reading of 100.1, which was the third lowest in 2018.

Economic sentiment in the euro area fell to a score of 109.8 this month from 110.9 in September, 111.6 in August, 112.5 in July and 115.2 at the end of 2017. Sentiment softened in industry, services, and construction, but the biggest deterioration occurred in retail, whose reading was negative 0.8 in October versus +2.4 in September and +4.8 at end-2017. A separate business climate index fell 0.20 to a reading of 1.01, lowest in 17 months.

Share prices have declined so far today by 1.2% in Greece, 0.7% in Italy, and 0.3% in both France and Germany. Markets around did better with gains of 1.5% in Japan, 1.0% in China, 0.9% in South Korea, 0.6% in Indonesia and 1.3% in Australia.

Fixed income securities markets in the euro area remain under strain. Whereas 10-year yields climbed 10 basis points in Italy, 3 bps in Greece and 2 bps in Spain, the 10-year German JGB held steady. The U.S. 10-year Treasury and Japanese JGB yields are marginally firmer.

The dollar strengthened so far today by 0.5% against the yen, 0.4% relative to sterling, and 0.3% vis-a-vis the euro, but the greenback is somewhat softer versus the Canadian, Australian and New Zealand dollars. The yuan is flat.

Commodity prices are lower, with daily declines so far of 1.2% in copper, 0.7% in oil and 0.4% in gold.

Japanese unemployment slipped to a 4-month low of 2.3% in September, and on-year growth in jobs advanced to 1.8% from 1.7% the month before and 1.3% back in May.

South African joblessness increased to a one-year high of 27.5% in the third quarter.

Greek producer price inflation decelerated to a 5-month low of 6.8% in September, down from 7.4% in August. Austrian PPI inflation edged down 0.1 percentage point to 3.3% last month. Irish PPI inflation dropped 1.2 percentage points to 5.5%, a 5-month low.

Spanish consumer price inflation stayed at 2.3% in October.

Australian building permits were 14.1% fewer in September than a year earlier. That’s a larger decline than analysts were expecting.

In yesterday’s annual British budget presentation, the ending of needed austerity was said to be conditional upon successful negotiation of a Brexit deal with the European Union.

The Case Shiller U.S. house price index will be reported later today.

Copyright 2018, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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