Weekly Export Risk Outlook


​In the headlines:
- Italy: Contraction slowed in Q2
- Australia: Monetary policy eased
- UK: Advent of explicit guidance
- Germany: Insolvencies falling


Figure of the week: -0.2% - Italy’s q/q GDP

​Italy: Contraction slowed in Q2

GDP continued to contract in Q2, by -0.2% q/q, and this was the eighth consecutive quarterly contraction. The GDP outcome is in line with EH forecasts but above the consensus of -0.4%. Investment growth is likely to have remained negative in Q2 as industrial production decreased by -0.9% q/q. However, business confidence improved recently, with the PMI service index gaining 2.9 points in July (to 48.7) and the PMI manufacturing index reaching 50.4, which puts it in expansionary territory for the first time since July 2011. On the demand side, prospects remain weak, with retail sales down -1.1% m/m in May, after -2.9% in April, and the rate of unemployment was 12.1% in June. Overall, EH expects economic growth to stabilise in late-2013 and return to a positive (if moderate) trend in 2014 (+0.3%), mainly export driven. The GDP breakdown for Q2 is scheduled to be released on 9 September.

Australia: Monetary policy eased

The Reserve Bank of Australia (RBA, central bank) cut its key policy interest rate to a new record low of 2.5% (previously 2.75%). This 25bps cut follows some signs of weak activity overall. GDP increased by +0.6% q/q in Q1, slightly below consensus and the government recently revised down its growth forecast for 2013 from 2.75% y/y to 2.5% y/y. The latest accommodative change in monetary policy, which came just after the PM called for a general election on 7 September, is expected to rebalance economic growth by encouraging borrowing and by strengthening the rate of currency depreciation. Meanwhile, inflationary pressures remain under control at 2.7% y/y in July (within the RBA target range of 2-3%) and provide scope for further monetary easing in the coming months.

UK: Advent of explicit guidance

The BoE left its key policy interest rate unchanged, at 0.5%, and broke with tradition by announcing that it will maintain its accommodative monetary policy as long as economic activity remains weak and unemployment remains above 7%. This form of communication is consistent with the arrival of a new governor, Mark Carney (previously governor of the Bank of Canada), who is a strong advocate of forward guidance, which is a more explicit direction regarding the future conduct of monetary policy. The Monetary Policy Committee gave more details, including that asset purchases will not be reduced until unemployment reaches the threshold and that the guidance linking Bank Rate and asset sales to the unemployment threshold will continue as long as (i) inflation remains under control (specifically, below the 2% target) and (ii) the financial policy committee judges that the monetary stance is not dangerous for the economy. Official GDP growth forecasts were raised to +1.5% in 2013 (previously +1.2%) and +2.7% in 2014 (previously +1.9%), compared with EH expectations of +1.1% and +1.6%, respectively.

Germany: Insolvencies falling

Despite relatively weak overall levels of economic activity in Q1, with GDP growth close to stagnation (+0.1% q/q), the number of corporate insolvencies continued to decline. According to the latest provisional figures from the Federal Statistical Office, Destatis, 6,608 business failures were recorded in Q1, representing a decline of -11.7% y/y (compared with Q1 2012) and of -8.8% as a 12-month floating rate (April 2012 to March 2013, compared with April 2011 to March 2012). On a q/q basis, the number of insolvencies in Q1 increased slightly, by +1.8%. Insolvency figures in Q1 on a monthly basis were subject to volatility, with 2,313 insolvencies registered in March, which was down by -17.7% y/y but up by +11.7% m/m.