FOLOWUSCONTACT US A CEIC Insights Report Euro Area Economy in a Snapshot Q3 2019 2 Executive Sumary Any redistribution of this information is strictly prohibited. Copyright 2019 CEIC, al rights reserved. A CEIC Insights Report Euro Area Economy in a Snapshot, Q3 2019 Source: A CEIC Insights Report 3 Economic Outlok Theeurozoneseconomysloweddownby18bpto1.15%y/yinthesecondquarterof2019, reflectingadropininvestmentandreductionsinexternaltrade. TheItalianeconomyhasnowcontractedonananualbasisintwosuccesivequarters-by0.06% and0.05%inQ1andQ2,respectively.Germanyisonthebrinkofrecesionwithamere0.41%y/y growthinQ2. IndustrialproductionintheEuroAreadeclinedby1.9%y/yonaverageinJuly,remainingin negativeteritory.ThecontractionwasmostnotableinGermanytheeurozonesindustrialheart by3.98%y/y. TheEuropeanCentralBankspolicyremaineddovishduringitslastmonetarypolicymeetingwith MarioDraghiaschairmanitcutthedepositrateby10bpto-0.5%andrestartedthequantitative easing(QE)programme. Seasonaly-adjusteddataforunemploymentrecordedaten-yearlowat7.5%inJuly. Economicactivitywilremainslowintheshortterm,accordingtotheCEICLeadingIndicator.Data fromtheindicatorrecordedadecreaseto86.73.Ithasnowremainedforoverayearunderthelong- termthresholdof100,dividingpositiveandnegativeoutlok.ManufacturingPMIpickedupby50bp fromJulytoavalueof47inAugust,thoughstilremaininginpesimisticteritory.Similarly, seasonaly-adjusteddataforthebusinesclimaterecordedaslightincreaseinAugustto0.11.Atthe sametime,consumersremainpredominantlypesimisticwithconsumerconfidencedecliningby7.1% inAugust. Onthepoliticalstage,risksforano-dealBrexitintensifyastheOctober31deadlineapproaches.Given theUKspoliticalturmoilandtheEuropeanComisionsshifttothenewadministrationofUrsula vonderLeyen,uncertaintyassociatedwiththestateofeconomicandpoliticalrelationsbetwenthe UKandtheblocremainshigh.AccordingtoarecentOECDstudy,ano-dealBrexitwouldresultina3% cutfromUKseconomicgrowthoverthefollowingthreyears.Althoughthisposesnodirectriskto theeuro,theUKisthesecondlargestexportpartnerandthirdintermsofimportsfromtheeurozone andinaneventofnodeal,tradeflowswouldbeunderthreat. Key Highlights EXECUTIVE SUMARY Euro Area Economy in a Snapshot, Q3 2019 A CEIC Insights Report 4 DuringthelastmonetarypolicymeetingwithMarioDraghiasactingECBchairman,thebankkeptits dovishpolicybycuttingtheinterestrateevenlowerandanouncingtherestartofQEatarateofEUR 20bnworthofassetsayear.ItappearslikelythatDraghissuccesor,formerIMFpresidentChristine Lagarde,wouldcontinuehispoliciesofquantitativeeasingandinterestrateadjustment,although,in lightoftheeurozonesstruggleswithinflationpersistentlyunderthetarget,thereisspeculationthat alternativepricestabilitymechanismswouldbeconsidered. CEIC Leading Indicator(Long-Term Trend = 100) Source: CEIC Data EXECUTIVE SUMARY Euro Area Economy in a Snapshot, Q3 2019 A CEIC Insights Report Sumary 5 Inthefaceofdecreasinginvestmentandplummetingexternaltrade,realGDPgrowthintheEuro Areadroppedtoafive-yearlowat1.15%onaseasonalyandworkingdayadjustedbasisinQ2.Inq/q terms,growthdecreasedby20bpto0.2%inQ2,belowits2017and2018levels. Theseasonalyandworkingdayadjustedindustrialproductionindex(IPI)recordeda1.8% contractiononananualbasis,causedbya4.16%y/yplungeofGermanysindustrialoutput.InJuly, GermanIPIrecordedapost-2008-crisislowat4.77%y/y. TheharmonizedindexofconsumerpricesstodwaybelowtheECB2%targetat1%inbothJuly andAugust.Coreinflationstodevenlower,at0.9%inthesameperiod.Inanefforttomaintainits credibility,thecentralbankcuttheinterestrateondepositsevenfurtherto-0.5%andrestartedthe QEprogramme. GiventhenegativeinterestratessetbytheECB,theyieldon10-yeargovernmentbondswasdown toarecord-low0.10%inAugust,down1.27ppy/y. TheeurozoneranasteadytradesurplusthatreachedEUR18.92bninJuly,upby52.92%onananual basis.ExportsincreasedfromJunetoEUR195.2bninJulyandkeptarobust3.11%anualgrowth. Imports,however,slipedinthesameperiodtoEUR176.25bnandshrunkby0.38%onayearlybasis. EXECUTIVE SUMARY Euro Area Economy in a Snapshot, Q3 2019 Purchasing Managers Index Consumer Confidence and Business Climate Source: CEIC Data Source: CEIC Data A CEIC Insights Report 6 EA Economy: Statistics at a Glance Source: CEIC Data EXECUTIVE SUMARY Euro Area Economy in a Snapshot, Q3 2019 Unit 10.01.201909.01.201908.01.201907.01.201906.01.201905.01.2019 PMI: Manufacturing NA 45,90 45,70 47,00 46,50 47,60 47,70 Industrial Production Index: YoY % -2,63 -1,90 -2,26 -0,85 Consumer Price Index: YoY % 0,70 0,80 1,00 1,00 1,30 1,20 PPI: YoY % -0,87 -0,39 0,10 0,97 Imports: YoY % -1,41 -0,04 0,56 3,48 Exports: YoY % 1,04 2,82 0,96 4,42 Unemployment Rate % 7,50 7,50 7,60 7,50 7,60 Wholesale & Retail Index: YoY % 3,17 2,90 2,38 Wages & Salaries Index % 2,68 Money Suply: M2: YoY % 5,90 6,47 5,49 5,08 5,37 Government Bond Yield: Monthly Average: Euro: 10 Years % pa 0,14 0,05 0,10 0,36 0,58 0,87 Policy Rate % pa 0,00 0,00 0,00 0,00 0,00 0,00 Direct Investment EUR bn 9,55 -16,98 -24,62 -7,10 Curent Account EUR bn 25,71 31,43 19,87 4,83 Source: A CEIC Insights Report 7 Real GDP Growth: QoQ CEIC Data EXECUTIVE SUMARY Euro Area Economy in a Snapshot, Q3 2019 ECB: Government Bond Yield: Curent and Projection Unemployment Rate: sa: Euro Area IMF GDP Growth Projections Headline and Core Inflation 8 Real Sector Any redistribution of this information is strictly prohibited. Copyright 2019 CEIC, al rights reserved. A CEIC Insights Report Euro Area Economy in a Snapshot, Q3 2019 A CEIC Insights Report Real Sector 9 AfteraslightpickupingrowthinQ1,theeconomyoftheEuroAreadeceleratedtoafive-yearlowat 1.15%inthesecondquarterof2019onaseasonalyandworkingdayadjustedanualbasis.Although anualincreasesinprivateconsumptionandgovernmentspendingremainedrobustat1.18%and 1.26%y/y,respectivelythatwasnotenoughtocompensatefora1.2ppdropinfixedinvestment growthto2.79%y/y.BothexportandimportgrowthdeceleratedinQ2to2.35%and2.56%onayearly basis,respectively,withimportsforesentofurtherdecelerateintheshortterm. Theindustrysectorwhichconstitutes19.5%ofthetotalgrosvalueaddedfortheEuroArea contractedforthethirdquarterinarowby1.06%.Thedeclinecameasaconsequenceofa3.63%y/y plungeoftheGermanindustry,whichproducesmorethanathirdoftheunionstotalindustrial outputvalueadded.Whatsmore,neworderscontracteddramaticalyby5.23%onananualbasisin July.Productiondecreasedinparalelwithfrefalingconsumerconfidencewhichplummetedby6.6% y/yinJuly,reflectingincreasingreluctancetobuypriceyitemssuchasautomobiles-Germanysmain economicpilar.IndustrialproductionindexdatafortheEuroArearecordedadeclineof2.35%y/yin June,onthebackofa4.17%dropinGermanyand0.15%inFrance. Retailsalesandpublicadministrationexpendituregrowthbothremainedinpositiveteritoryandkept growing,althoughslowingdownincomparisontoQ1to1.6%and1.2%y/yrespectively.Thisreflects thedecelerationofretailsalesvalueinQ2from4.83%inAprilto2.37%and2.89%inthesubsequent twomonths.RetailsalesinSpainrecordedastrongupwardtrendinH1,growingby3.2%y/yinJuly thefigurebeingthehighestamongthetopfoureurozoneeconomies. Asofthesecondquarterof2019,Italyenteredatechnicalrecesionasgrowthremainednegativefor thesecondquarterinarowat-0.051%y/yinQ2.However,retailsalesgrowthintheMediteranean countryremainedrobustat2.57%y/yinJuly,whileunemploymentkepttrendingdownward.The Frencheconomyacceleratedslightlyto1.38%y/ybasedonincreasedfixedinvestment,while neighbouringGermanyclosedinonrecesionaryteritory,withamere0.41%y/ygrowth. Onapositivenote,unemploymentshowednosignsofdeteriorationasitkepttrendingdownwardto itspre-2008-crisislevelsat7.5%inJuly.WhileinSpainandItalythefigureswerestilrelativelyhigh 14%and9.9%inJulyinGermanyitwasdowntohistoricalylowlevelsat2.9%inthesameperiod. However,labourproductivitydeclinedforthirdquarterinarowby0.05%y/ypusheddownbya 2.24%y/ydropinindustrialproductivity. REAL SECTOR Euro Area Economy in a Snapshot, Q3 2019 Source: A CEIC Insights Report 10 GDP by Expenditure CEIC Data REAL SECTOR Euro Area Economy in a Snapshot, Q3 2019 GDP: Real Growth and Nominal Unit 09.01.201906.01.201903.01.201912.01.201809.01.201806.01.2018 GDP: CL 2010p: swda: EA EUR bn 2676,852671,842666,802655,442646,512641,34 Domestic Demand (DD) EUR bn 2588,242552,952550,292539,342528,20 DD: Final Consumption Expenditure (FCE) EUR bn 1985,161980,421973,271965,851962,81 DD: FCE: General Government EUR bn 553,19551,24548,92546,70546,03 DD: FCE: Household and NPISH EUR bn 1431,991429,211424,371419,171416,80 DD: Gros Capital Formation (GCF) EUR bn 603,40572,90577,41573,88565,75 DD: GCF: Gros Fixed Capital Formation EUR bn 597,28565,37562,70553,91549,68 Exports EUR bn 1330,501328,191314,341302,871297,71 Exports: Gods EUR bn 973,83976,98966,00957,33957,05 Exports: Services EUR bn 356,44351,24348,33345,52340,81 Imports EUR bn 1248,011214,571209,701196,021184,64 Imports: Gods EUR bn 902,69899,53895,51887,17881,80 Imports: Services EUR bn 345,40316,50315,60310,38304,60 Real GDP Growth: Top 4 Economies A CEIC Insights Report 11 Households and NPISH: Consumption Expenditure: YoY Fixed Investment: YoY General Government: Consumption Expenditure: YoY Source: CEIC Data REAL SECTOR Euro Area Economy in a Snapshot, Q3 2019 A CEIC Insights Report 12 Exports of Gods and Services: YoY GDP: by Income Imports of Gods and Services: YoY Source: CEIC Data REAL SECTOR Euro Area Economy in a Snapshot, Q3 2019 A CEIC Insights Report 13 GDP by Income: YoY Gros Value Aded: by Industry Source: CEIC Data REAL SECTOR Euro Area Economy in a Snapshot, Q3 2019 GVA Growth: Major Industries A CEIC Insights Report 14 Industrial Production Index: YoY IPI: Top 4 Economies Source: CEIC Data REAL SECTOR Euro Area Economy in a Snapshot, Q3 2019 Wholesale and Retail Trade Index: Volume and Value A CEIC Insights Report 15 Construction Production Index: YoY Retail Sales: Top 4 Economies House Price Index: YoY Source: CEIC Data REAL SECTOR Euro Area Economy in a Snapshot, Q3 2019 A CEIC Insights Report Unemployment Rate Wages and Salaries Index: YoY 16 Unemployment Rate: Top 4 Economies Source: CEIC Data REAL SECTOR Euro Area Economy in a Snapshot, Q3 2019 17 Monetary & Financial Sector Any redistribution of this information is strictly prohibited. Copyright 2019 CEIC, al rights reserved. A CEIC Insights Report Euro Area Economy in a Snapshot, Q3 2019 A CEIC Insights Report Monetary & Financial Sector 18 Inflationremainedasignificantdeterenttogrowthastheconsumerpriceindex(CPI)wentdown furtherto1%inJulyandAugust,waybelowthe2%targetoftheECB.Themandatetobringinflation uptothetargetlevelwilbegiventotheformerIMFbosChristineLagarde,whoisduetosucced MarioDraghiasECBchiefonNovember1afterhernominationwassupportedbytheECsComite onEconomicandMonetaryAffairs.DuringaSeptemberhearing,Lagardeoutlinedthedirectionofthe ECBsmonetarypolicyunderhertenure,thoughwithoutgetingtoospecificonparticularpolicies.She suggestedthatnochangeofcourseisexpectedasQEprogrammesarelikelytocontinue.However, Lagardeopposedthecurrentneutralityregardingthechoiceofbondsthebankbuys,asherintention istoincreasetheshareoflow-carbonbusinesbondsintheECBsportfolio. UpwardpresuretoCPIcamefromanincreaseoffoodandnon-alcoholicbeveragesinflationby43bp to1.7%inJuly,buttheeffectwasoffsetbya75bpdropinhousingandutilitiesto1.52%.Otherkey sectorsthatremainwaybelowthetargetweretransportandrecreation&culture,at0.99%and- 0.97%inJuly,respectively.Restaurant&hotelpricesalsowentdownincomparisontotheprevious month,remainingjustabovethetargetat2.01%inJuly. Inanefforttobringupinflationandstimulatethesluggishgrowthacrostheeurozone,theECB anouncedanewstimuluspackduringitsSeptember12meeting.Asexpected,thedepositratewas loweredby10bpto-0.5%withaviewtoacceleratinglendinggrowthonbehalfofcomercialbanks. However,thereisnarowroomformanoeuvring,giventhattherateisalreadyinnegativeteritory andsoonitcouldreachalevelwhereitdoesnotmakeeconomicsense.Moreover,aprotractedperiod ofnegativeratesposesarisktopeoplessavingsandpensionacounts,anisuethatLagarde pointedoutduringherrecenthearing.Additionaly,thecentralbankersdecidedonarestartoftheQE programmeatamonthlyrateofEUR20bn. MONETARY & FINANCIAL SECTOR Euro Area Economy in a Snapshot, Q3 2019 A CEIC Insights Report 19 Headline and Core Inflation CPI: Top 4 Economies HarmonisedIndex of Consumer Prices Source: CEIC Data MONETARY & FINANCIAL SECTOR Euro Area Economy in a Snapshot, Q3 2019 Core CPI: Top 4 Economies Source: A CEIC Insights Report 20 HarmonisedConsumer Price Index CEIC Data MONETARY & FINANCIAL SECTOR Euro Area Economy in a Snapshot, Q3 2019 Producer Price Index: EA 19 Unit 10.01.201909.01.201908.01.201907.01.201906.01.201905.01.2019 HarmonisedConsumer Price Index: Euro Area % 0,74 0,83 1,01 1,02 1,27 1,22 Food & Non Alcoholic % 1,23 1,89 1,70 1,27 1,12 Alcoholic, Tobaco & Narcotics % 2,79 2,76 2,73 2,80 3,04 Housing, Water, Electricity, Gas & Other Fuels % 0,95 1,30 1,52 2,27 2,34 Comunications % -1,79 -2,15 -2,52 -2,55 -2,98 Restaurants & Hotels % 1,97 1,95 2,01 2,40 2,06 MS: Insurance % 1,92 1,90 1,79 1,58 1,23 Services % 1,56 1,48 1,30 1,17 1,63 1,05 All Items: excl Energy & Seasonal Fod % 1,18 1,14 1,07 1,25 0,98 Clothing & Fotwear % 0,53 1,25 1,33 0,43 0,40 Furnishings, Household Equipment % 0,42 0,54 0,53 0,36 0,48 Health % 0,79 0,89 0,66 0,70 0,66 Transport % 0,01 0,61 0,99 1,09 1,98 Recreation & Culture % -0,11 -0,87 -0,97 0,66 -0,79 Education % 0,58 0,77 -0,66 -0,63 -0,09 Miscelaneous Gods & Services % 1,68 1,66 1,55 1,60 1,47 Goods excl Services % 0,31 0,75 0,90 0,97 1,36 Source: A CEIC Insights Report 21 Producer Price Index: EA CEIC Data MONETARY & FINANCIAL SECTOR Euro Area Economy in a Snapshot, Q3 2019 PPI: Top 4 Economies Unit 08.01.201907.01.201906.01.201905.01.201904.01.201903.01.2019 PPI: EA 19 % -0,87 -0,39 0,10 0,97 1,86 1,96 Industry: excl Construction % -0,87 -0,29 0,19 1,07 1,96 1,96 MQ & Mfg % -0,48 -0,10 -0,10 0,58 1,27 1,17 Mining & Quarying (MQ) % -16,14-15,02-11,65-5,52 -1,99 -0,31 Manufacturing (Mfg) % -0,39 0,00 -0,10 0,68 1,27 1,27 Electricity, Gas & Air Conditioning Suply (EA) % -3,70 -1,25 1,49 3,94 6,65 7,30 Intermediate Gods % -0,67 -0,48 -0,10 0,58 1,25 1,26 Energy % -6,08 -3,03 -1,59 2,66 6,48 7,57 Capital Gods % 0,78 0,78 0,78 0,79 0,98 0,69 Consumer Gods % 0,89 0,79 0,59 0,50 0,40 0,20 Consumer Durables % 0,98 1,08 0,88 0,89 0,98 0,99 Consumer Non Durables % 0,69 0,69 0,59 0,40 0,40 0,10 Source: A CEIC Insights Report 22 Policy Rate and Inflation Key Rates CEIC Data MONETARY & FINANCIAL SECTOR Euro Area Economy in a Snapshot, Q3 2019 Unit 10.01.201909.01.201908.01.201907.01.201906.01.201905.01.2019 Policy Rate: Month End: Main Refinancing Operations % pa 0,00 0,00 0,00 0,00 0,00 0,00 Key Interest Rate: Month End: Deposit Facility % pa -0,50 -0,50 -0,40 -0,40 -0,40 -0,40 Key Interest Rate: Month End: Marginal Lending Facility % pa 0,25 0,25 0,25 0,25 0,25 0,25 RRR: Reserve Coeficient: OvernightDeposit,Deposit,Debt Sec, MMPaper % 1,00 1,00 1,00 1,00 1,00 1,00 MFI: Lending Rate: NB: H: Consumer Credit (C): Fixation: Total % pa 5,62 5,80 5,73 5,64 5,74 MFI: Lending Rate: NB: H: House Purchase (HP): Fixation: Total % pa 1,47 1,52 1,58 1,64 1,71 Euro Index Average (EONIA): Ov