Weekly Export Risk Outlook


​In the headlines:
- Japan: And the winner is...Abe
- Eurozone: Continuing tight credit conditions for corporates
- US: House arrest?
- Eurozone: Early signs of improvement in Q3


Figure of the week: +5% - Vietnam’s y/y Q2 GDP growth

​Japan: And the winner is...Abe

The Liberal Democratic Party and its ruling coalition partner, New Komeito, won 76 seats in elections on 21 July. They now have 135 seats out of a total of 242 in the upper chamber of parliament, which should give PM Shinzo Abe’s government a stable majority in both Houses of the Diet for the next three years. This result confirmed the popularity of Abenomics, suggesting a further deepening in monetary policy loosening, fiscal stimulus and pro-growth reforms in the coming years, especially on the structural side. There is also the prospect of more flexibility in labour markets and the creation of deregulated economic areas to attract foreign investments. EH expects the economy to grow by +1.6% in 2013, boosted by both public and private consumption.

Eurozone: Continuing tight credit conditions for corporates

The Q2 ECB Bank Lending Survey suggests that credit standards on loans to non-financial corporations (NFC) continue to remain tight, notably for SME. However, banks expect credit conditions associated with loans to NFC to be less tight in Q3. Lending polices remain affected by macro-economic uncertainty and by borrowers’ risk (industry and company specific). Loan demand from the NFC continued to decline in Q2, but at a slower pace, and banks expect this trend to continue. Several initiatives to support lending to corporates were taken at the recent EU summit, including an increase in EIB capital (allowing EUR180 billion of additional investment, equivalent to 1.4% of eurozone GDP), an easing in ABS collateral requirements by the ECB and the EIB-European Commission proposals on loan securitisation for SME. Within the latter, the most interesting option (securitisation of new and old SME loans and risk mutualisation) would allow additional bank loans of around EUR100 billion for one million SME.

US: House arrest?

The housing market appears to have hit a bump in the road in its substantial recovery phase. Since May, when talk of the Fed’s tapering of asset purchases first arose, the interest rate on a 30-year mortgage has increased from approximately 3.5% to 4.5%. Perhaps as a result, sales of existing single family homes fell -1.1% m/m in June, the first decline in four months. Prices increased by 5.5% m/m (13.2% y/y), also hurting sales. In addition, June starts and permits fell -9.9% m/m and -7.5% m/m, respectively, although they may have been affected by wet weather and volatility in the multi-family components. Meanwhile, manufacturing showed another sign of a rebound as the Philadelphia Fed’s July survey improved sharply to 19.8, the highest since March 2011, and the Fed’s “Beige Book” reported economic activity rising at a “modest to moderate pace” including expansion in manufacturing.

Eurozone: Early signs of improvement in Q3

Business confidence surprised on the upside in July, suggesting that recession could be avoided in Q3. The PMI composite index increased by 1.7 points to 50.4 (consensus at 49.1), above the no-growth threshold for the first time since January 2012, with the manufacturing output PMI at 52.3 and services at 49.6. Prospects have improved in the manufacturing sector with output at its highest level since mid-2011 and new orders on the rise for the first time since May 2011. The current level suggests a slight improvement in economic activity in the coming months but this trend is not yet firmly established. While business confidence improved substantially in Germany (+1.7 points to 50.3 in manufacturing and +2.1 points to 52.5 in services) it continues to suggest contraction in France (+1.4 points to 49.8 in manufacturing and +1.1 points to 48.3 in services). For the peripheral countries, output persists in contractionary territory, but the rates of decline have slowed.