Weekly Export Risk Outlook


​In the headlines:
- UK: Positive surprise on growth
- Spain: Slow progress?
- Eurozone: Weak corporate investment rate
- North Africa: Regional tremors


Figure of the week: -20% - Spain’s June y/y contraction in credit to non-financial corporates

​UK: Positive surprise on growth

Growth accelerated in Q2, to +0.6% q/q, slightly above EH forecasts, after +0.3% in Q1. All the main industry sectors improved for the first time since Q2 2010, indicating that the UK’s recovery is strengthening. The main contribution to the increase in GDP came from the services sector (+0.5pps), accounting for around 80% of the economy. Industrial production contributed +0.1pps to the increase, while the construction and agriculture sectors contributed +0.05pps and +0.01pps, respectively. The resilience of the labour market (stable unemployment at 7.8%) and strong retail sales (+0.9% q/q in Q2 after +0.5% in Q1) will have supported private sector consumption. Private investment growth is likely to have remained in positive territory, supported by recovering business confidence and improving credit conditions for the corporate sector. The GDP demand breakdown will be released on 23 August.

Spain: Slow progress?

The Bank of Spain yesterday released preliminary Q2 GDP growth estimates showing a contraction of -0.1% q/q, compared with -0.5% in Q1 and slightly above the forecast of EH. According to the National Statistical Institute, Q2 GDP data reflect a more negative contribution in domestic demand that was partially compensated by a positive contribution in net exports. Meanwhile, unemployment reached a record high of 26.9% in May, double the rate at end-2008 and retail sales decreased by -5% y/y in June, compared with -4.4% in May. Also, credit to NFC further deteriorated in June, declining by -20% y/y, the sharpest fall since November 2007. Against this background, EH expects a progressive stabilisation in growth in Q3/Q4, mainly triggered by further positive contributions from net exports and by improvements in business confidence. In June, for the first time since April 2011, the manufacturing PMI reached 50, indicating balance between expectations of growth and contraction. Overall, EH expects GDP to contract by -1.6% in 2013 and to recover only moderately in 2014, to +0.3%.

Eurozone: Weak corporate investment rate

In Q1, the business profit share (gross operating surplus divided by gross value added) remained stable at 37.7% on the back of a stabilisation in both gross value added and compensation to employees. The gross investment rate fell to 18.8%, reaching the lowest level in the past decade, reflecting contraction in investment (-3.4% q/q), while gross value added remained stable. Latest data for credit to NFC suggest that this trend is likely to continue in coming months as the amount of loans was down by -5% in June to the lowest level since early 2008. Further, investment surveys in Germany suggest that investment in France and Germany is more oriented towards equipment replacement and modernisation, rather than new production. Moreover, prevailing tight credit conditions and weak private demand remain a drag on investment. EH expects stabilisation in eurozone investment in Q3/Q4 if the trend in business confidence continues to improve. In this respect, the composite PMI, at 50.4 in July, was above the no-growth threshold for the first time since January 2012.

North Africa: Regional tremors

The political transitions in North Africa were always going to be difficult, given the revolutionary nature of the regime changes and expectations of the populations. In Egypt, the fall of the elected government in early July, detention of the president and ensuing demonstrations and violence delay the prospect of political and economic stability and therefore limit consumer and investor confidence. Without an elected government, IMF support is also on hold and the economy remains dependent on bilateral aid and grants, particularly from the GCC. In Tunisia, the political assassination of an opposition leader reflects deep divides between secular and Islamist groups and a similar killing earlier in the year brought down the government of the time. Consolidation of earlier political gains is proving difficult. Meanwhile, in Libya, tribal and regional divisions and heavily-armed militia are preventing the establishment of a centralised authority and improvements in security. Trading conditions are challenging throughout the region.