- Growth in Q3 rose by 0.8%, best since Q2 2010
- FOMC meeting due Wednesday, no movement expected
- German IFO dips slightly after falls in factory output
Before the news in the UK became obsessed with a storm that reminds your author of many a summer’s day spent just outside Belfast, the focus was on the UK’s growth outlook. UK growth was shown to be running at the fastest rate since mid-2010 on Friday with the preliminary estimate of growth in Q3 running at 0.8%, matching the markets’ expectations. Hopes for broad-based growth in Q3 have so far been realized although, naturally, a heavy part relies on the services sector. Construction was higher by 2.5%, agriculture by 1.4% and services pumped out the best number since Q3 of last year – the quarter that benefited from the Olympics.
Of that services growth, a lot seems to correlate with recent surveys; business-to-business companies and those who are able to take advantage of the recent expansion of housing market exuberance are the main beneficiaries. The consumer facing side of the industry – the high street – is not keeping pace. The falls in real incomes have been highlighted by high street stalwarts in recent weeks and will likely depress output moving through Q4; I believe Friday’s figure will be the “high-water mark” for the UK economy for now. Growth will continue but these rates are, at this point in time, unsustainable.
Jobs, factory output data and retail numbers out of Germany have all been on the weak side lately and this must have contributed to the unexpected fall in business confidence in Germany. Both the current situation and expectations indices showed a decline for the first time in 6 months, displaying doubts over the overall strength of the recovery in the Eurozone. While we don’t see the figure as the beginning of a new trend, it has tempered expectations of an imminent improvement in European prospects.
One European indicator that is in a trend – and a negative one at that – is the rate of credit growth in the Eurozone. Loans to non-bank borrowers i.e. consumers, households and companies contracted once again in September, further propagating the belief that the Eurozone is in the midst of another credit crunch. Pressure must be increasing on the European Central Bank to ease monetary policy sooner rather than later. The next ECB meeting is on November 7th; I would expect further discussions by the Bank’s Executive Council on a rate cut. I doubt they will follow through though.
News from the US was also poor with more data available that had been held back as a result of the recent government shutdown. September durable goods orders fell once by 0.1% once the volatile transport element was stripped away whilst consumer confidence as measured by the University of Michigan fell to a 10-month low. The main news from the States this week will be Wednesday’s Fed meeting. Although no movement on rates or QE is expected, you would have to expect a slight tone change or, hopefully, an outright castigation of the people in power in Washington DC. The meeting takes place on Wednesday at 18.00 GMT.
The Bank of Japan and the Reserve Bank of New Zealand are the other 2 major banks to release decisions this week. While we also expect no move from either of them it is possible that we see some language from the latter about the recent NZD strength and the issues that could cause for the economy moving forward.
Have a great, if a little windy, day.