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Eurozone Q3 GDP Forecasts

Several indicators which can be used to forecast Eurozone Q3 GDP were published this week:

 

1/ Belgian economy grew 0.3% QoQ in Q3 (strongest since Q1 2011).

 
2/ Spanish GDP increased 0.1% QoQ in Q3 (first rebound after nine quarters of contraction).
 

3/ French consumer spending unexpectedly fell in September and in Q3.

 

4/ German real retail sales unexpectedly declined for a second straight month in September.
 

As a consequence, we can build our scenarios with a cautious approach regarding French and German contributions. By taking into account the weight of each economy in the euro area (Germany: 27%; France: 21%; Italy: 18%; Spain: 12% and Belgium: 5%), we get the following forecasts:

 

Growth Forecasts
Scenario Pessimistic Central Optimistic
Germany 0.2% 0.3% 0.4%
France 0.1% 0.2% 0.3%
Italy -0.1% 0.0% 0.1%
Spain (1st publication) 0.1% 0.1% 0.1%
Belgium (1st publication) 0.3% 0.3% 0.3%
Others 0.0% 0.1% 0.2%

 

Growth Contributions
Scenario Pessimistic Central Optimistic
Germany 0.054% 0.081% 0.105%
France 0.021% 0.042% 0.063%
Italy -0.018% 0.000% 0.018%
Spain (1st publication) 0.012% 0.012% 0.012%
Belgium (1st publication) 0.015% 0.015% 0.015%
Others 0.000% 0.017% 0.034%
Total 0.084% 0.0167% 0.0230%
Total (rounded) 0.1% 0.2% 0.2%


 

In the central scenario, based on the main central banks’ expectations, Eurozone growth could reach 0.2% in Q3 2013.

Eurozone Emerges from Recession Thanks to France and Germany

The German and French economies grew respectively by 0.7% and 0.5% in Q2 (faster than the US), pulling the Eurozone out of its longest recession.

 

Eurozone growth was 0.3% from the previous quarter, with its two biggest economies revealing unexpected strength such as Austria (0.2%) and Finland (0.7%). In the meantime, Portugal was the best performer with 1.1% growth due to higher exports. That compared with around 0.4% growth in the quarter (1.7% annualized)  in the United States.

 

Regarding France, economy posted its strongest quarterly growth since early 2011 supported by consumer spending, industrial output and inventories, although investment component fell gain. At the opposite, German economy posted  its largest expansion in more than a year thanks largely to domestic private and public consumption ahead of elections (September 22).

 

On the negative side, the recession is worsening in Netherlands (-0.2% QoQ ; -1.8% YoY) and particularly in Cyprus (-1.4% QoQ ; -5.2% YoY) where the contraction could exceed forecast set by European Commission (-6.7% for 2013) and therefore could challenge the bailout program.

 

Overall, despite some disappointments, Eurozone is on track to technically recover (two positive quarters) in Q3 2013  as several surveys  (Eurozone PMI, Sentix Investor Confidence) show that conditions have improved since the end of June.

 


Source: Eurostat

Eurozone Q2 GDP Forecasts: Last Update

Since our last update, several German and French officials confirmed that the two largest economies grew in Q2 and even gave some indications regarding  second-quarter figures:

 

1/ The German economy probably expanded about 0.75 percent in the second quarter, according to a government estimate.

2/ After saying that recession is over, France’s finance minister denied that France has revised down its economic prospects for 2013 suggesting that the Q2 figures could be encouraging.

 

As a consequence, we can update our scenarios with a more optimistic approach regarding French and German contributions. By taking into account the weight of each economy in the euro area (Germany: 27%; France: 21%; Italy: 18%; Spain: 12% and Belgium: 5%), we can adjust our forecasts:

 

 

Growth Forecasts
Scenario Pessimistic Central Optimistic
Germany 0.75% 0.75% 0.75%
France 0.1% 0.2% 0.3%
Italy (1st publication) -0.2% -0.2% -0.2%
Spain (1st publication) -0.1% -0.1% -0.1%
Belgium (1st publication) 0.1% 0.1% 0.1%
Others -0.2% -0.1% 0.0%

 

Growth Contributions
Scenario Pessimistic Central Optimistic
Germany 0.202% 0.202% 0.202%
France 0.021% 0.042% 0.063%
Italy (1st publication) -0.036% -0.036% -0.036%
Spain (1st publication) -0.012% -0.012% -0.012%
Belgium (1st publication) 0.005% 0.005% 0.005%
Others -0.034% -0.017% 0.000%
Total 0.146% 0.0184% 0.0222%
Total (rounded) 0.1% 0.2% 0.2%


 

Last data change the final results (rounded) of each scenario. The central estimate becomes 0.2%. Therefore, thanks to Germany and France, the Eurozone economy should technically  recover (two positive quarters) in Q3 as several surveys  (Eurozone PMI, Sentix Investor Confidence) show that conditions have improved since the end of June.

Germany and France will Drive Eurozone Out of Recession

This weekend, several comments from German and French officials confirmed that the two largest economies in the Eurozone grew in Q2 and will certainly drive Eurozone out of recession in Q3.

 

Concerning Germany, according to a government estimate, the economy probably expanded about 0.75%, a number that exceeds the 0.6% median of 46 economist estimates compiled by Bloomberg.

 

More from Bloomberg:

 

The Economy Ministry is predicting growth of about three-quarters of a percent, according to a person familiar with the forecast, who asked not to be identified because the projection is confidential. That exceeds the 0.6 percent median of 46 economist estimates compiled by Bloomberg. Germany’s Federal Statistics Office will release the data at 8 a.m. on Aug. 14.

 

Regarding France, yesterday, French finance minister, Pierre Moscovici, declared recession is over. Even if Moscovici does not reveal the second-quarter figure, this statement suggests that growth came back in Q2.

 

More from Moneynews:

 

France’s finance minister says the economy is out of recession, part of a campaign by the French government to convince the public that a turnaround is underway.
 
France’s gross domestic product shrank by 0.2 percent for the past two quarters — the technical definition for a recession — and data for the second quarter of the year won’t be published until Aug. 14. But Pierre Moscovici told Corse Matin newspaper in an interview published Saturday that the recession is over, without revealing the second-quarter figures.

 

In this context, it’s clear that Eurozone GDP will be positive in Q2 and it will pave the way for a technical recovery (two positive quarters) in Q3 to the extent that statistics have improved significantly since the end of June.