Dentalfloss
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Eurozone Q1 GDP - a couple of quick thoughts
Eurozone Q1 GDP -3.8% q/q -3.3% y/y was in line with Bloomberg consensus -3.8% q/q -3.4% y/y.
In somewhat over-simplified terms, this really does suggest that ‘locking down’ economies promptly has paid off. This is in so far as the readings from France (-5.8% q/q) and Spain (-5.2% q/q) had understandably put markets on guard for a worse than expected reading, with the Italian reading (-4.8% q/q vs. consensus -5.4% q/q and y/y) slightly less grim. However, the outcome of -3.8% q/q implies a German Q2 GDP reading in the area of -2.0% q/q, in line with / a little better than Austria -2.5% q/q. The French Consumer Spending (-17.9% m/m -18.1% y/.y) number published earlier underlined that it is Services and Personal Consumption that has collapsed (along with Construction, though this is a much smaller contributor to overall GDP), as was to be expected given the lockdown and indeed the run of survey evidence that had already been published. By extension the data also suggest that caution should be the watchword in lifting lockdown restrictions, as is already evident in Germany, which is watching the pick-up in new cases reported in the past few days, before taking any further decisions.
Where does this leave EU/Eurozone ? The challenge is in crafting a cross EU / Eurozone package to combat the worst economic effects of the virus, and to boost the post Covid-19 period, with the biggest challenges being overcoming the long standing North/South divide, and above all in ensuring that it is implemented as soon as possible. The size of the package has been agreed, but its financing is still under dispute, and the compromises that are being touted suggest it will be too little too late. As I noted last week: “). The EU once again managed to agree that more needs to be done via way of a package to combat the impact of Covid-19, but also singularly failed on how this would be financed and deployed - the message from the likes of French President Macron was that it is effectively better not to reach a deal than agree a bad deal, but as with his FT interview last week, he was keen to stress that the failure is a material existential threat to the future of the EU/Eurozone. Perhaps more salient is the point that there is an obvious acute need for this package to be implemented immediately. Even if some compromise is finally reached, it may well be far too little, and far too late, not to mention that with each passing day the costs will continue to rise, and the failure to reach agreement only exacerbates the shattered levels of public confidence (consumer & business), and economic nationalism tendencies.”
So who comes out better? Whatever benefits the Northern countries (Germany, Netherlands, Austria & Finland) may have due to having a stronger fiscal position prior to the virus outbreak is worth little, if intra-Eurozone export demand (above all Italy, Spain and to a lesser extent Portugal and Greece) remains very weak. This was the case during the past decade, and will be the case again, unless a more effective package, involving some form of transfer payments from the strongest to the weakest, is implemented very quickly… the current package does not appear to be likely to come into force until the start of 2021 – by which time the damage may be intractable. There is also a much broader global perspective: the world economy will see some dramatic changes in the aftermath of Covid-19, which will see a sharp reshaping of supply chains, in most cases seeing processes shortened both geographically and in terms of processes. Those economies that are in position to innovate and react decisively will be the winners, those that resist change and are mired in ‘old’ thinking/dogma on how economies are to be managed will pay a heavy price.
..........................................................................
MARC OSTWALD
Chief Economist & Global Strategist
ADM Investor Services International Limited
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| 11:36 (37 minutes ago) |
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Eurozone Q1 GDP -3.8% q/q -3.3% y/y was in line with Bloomberg consensus -3.8% q/q -3.4% y/y.
In somewhat over-simplified terms, this really does suggest that ‘locking down’ economies promptly has paid off. This is in so far as the readings from France (-5.8% q/q) and Spain (-5.2% q/q) had understandably put markets on guard for a worse than expected reading, with the Italian reading (-4.8% q/q vs. consensus -5.4% q/q and y/y) slightly less grim. However, the outcome of -3.8% q/q implies a German Q2 GDP reading in the area of -2.0% q/q, in line with / a little better than Austria -2.5% q/q. The French Consumer Spending (-17.9% m/m -18.1% y/.y) number published earlier underlined that it is Services and Personal Consumption that has collapsed (along with Construction, though this is a much smaller contributor to overall GDP), as was to be expected given the lockdown and indeed the run of survey evidence that had already been published. By extension the data also suggest that caution should be the watchword in lifting lockdown restrictions, as is already evident in Germany, which is watching the pick-up in new cases reported in the past few days, before taking any further decisions.
Where does this leave EU/Eurozone ? The challenge is in crafting a cross EU / Eurozone package to combat the worst economic effects of the virus, and to boost the post Covid-19 period, with the biggest challenges being overcoming the long standing North/South divide, and above all in ensuring that it is implemented as soon as possible. The size of the package has been agreed, but its financing is still under dispute, and the compromises that are being touted suggest it will be too little too late. As I noted last week: “). The EU once again managed to agree that more needs to be done via way of a package to combat the impact of Covid-19, but also singularly failed on how this would be financed and deployed - the message from the likes of French President Macron was that it is effectively better not to reach a deal than agree a bad deal, but as with his FT interview last week, he was keen to stress that the failure is a material existential threat to the future of the EU/Eurozone. Perhaps more salient is the point that there is an obvious acute need for this package to be implemented immediately. Even if some compromise is finally reached, it may well be far too little, and far too late, not to mention that with each passing day the costs will continue to rise, and the failure to reach agreement only exacerbates the shattered levels of public confidence (consumer & business), and economic nationalism tendencies.”
So who comes out better? Whatever benefits the Northern countries (Germany, Netherlands, Austria & Finland) may have due to having a stronger fiscal position prior to the virus outbreak is worth little, if intra-Eurozone export demand (above all Italy, Spain and to a lesser extent Portugal and Greece) remains very weak. This was the case during the past decade, and will be the case again, unless a more effective package, involving some form of transfer payments from the strongest to the weakest, is implemented very quickly… the current package does not appear to be likely to come into force until the start of 2021 – by which time the damage may be intractable. There is also a much broader global perspective: the world economy will see some dramatic changes in the aftermath of Covid-19, which will see a sharp reshaping of supply chains, in most cases seeing processes shortened both geographically and in terms of processes. Those economies that are in position to innovate and react decisively will be the winners, those that resist change and are mired in ‘old’ thinking/dogma on how economies are to be managed will pay a heavy price.
..........................................................................
MARC OSTWALD
Chief Economist & Global Strategist
ADM Investor Services International Limited
