Weekly Export Risk Outlook


​In the headlines:
- Eurozone: Cautious recovery
- US: Housing cracks?
- Emerging Markets: Currency pressures
- South Africa: Higher Q2 GDP growth


Figure of the week: +0.3% - Eurozone’s q/q GDP growth in Q2

​Eurozone: Cautious recovery

Q2 GDP growth (+0.3% q/q) surprised on the upside, with better-than-expected outcomes in Germany (+0.7% q/q), France (+0.5%), Austria (+0.2%), Finland (+0.7%) and some southern countries, including Spain (-0.1% q/q), Portugal (+1.1%) and Greece (-4.6%). Positive overall GDP growth follows six consecutive quarterly declines but partly reflects a rebound from weak weather-related GDP data in Q4 2012 and in Q1, with construction increasing by +2.8% q/q in June and energy consumption unusually strong (+2.4% q/q in France, for example). Accordingly, a negative carry-over into Q3 is not excluded. EH continues to expect a gradual and moderate recovery in GDP growth, mainly driven by strong export performances by Germany and parts of the south. This trend is confirmed by business surveys, with the Composite PMI up to 51.7 in August (+1.2pts from July, the largest monthly increase for over two years) while order books (notably for exports) show signs of improvement. Nevertheless, a more sustained recovery remains unlikely in the short term because of prevailing structural weaknesses, including private deleveraging, tight credit conditions and ongoing fiscal consolidation.

US: Housing cracks?

Some cracks may be appearing in the housing market recovery. New home sales fell sharply in July, by -13.4% m/m annualised, with downward revisions to data for the preceding two months, while median prices fell for the third consecutive month. Applications for purchase mortgages have fallen -13% since the first hint of Quantitative Easing (QE) tapering in May (-59% for re-financings). The percentage of consumers planning to buy a home in the next six months fell sharply in August to 5.1% from 6.9%. While existing home sales increased, the National Association of Realtors attributed this partly to buyers who “panicked” at the +100bps rise in mortgage rates since May. Meanwhile, minutes from the Fed’s June meeting indicated broad consensus that QE tapering is likely to happen this year, but the Fed conference in Jackson Hole, Wyoming, gave little hint as to exactly when the tapering will begin, and exposed a divergence of opinion among Fed members.

Emerging Markets: Currency pressures

Pressures on Emerging Market (EM) currencies¯which started in May as concerns about the impact of Fed tapering triggered capital outflows¯increased further in August. Countries that have benefited markedly from the Fed's earlier QE and built up current account deficits have been hit hard, with the Indian INR losing 11% against the USD in August to date (25% since end-April), the Indonesian IDR 10% (16%), the Turkish TRY 5% (13%), the South African ZAR 6% (15%) and the Brazilian BRL 6% (20%). Emerging Europe, which has not attracted substantial net capital inflows in recent years, has avoided the worst of the recent currency sell-off. It is too early to talk about an EM currency crisis and it appears more of a cyclical currency decline for those countries affected. Foreign currency debt burdens are much lower than in previous crises and most EMs have built up substantial FX reserve buffers that can be used to avert excessive currency movements. However, corporate non-payment risk has increased for buyers that have not sufficiently hedged against exchange rate risk.

South Africa: Higher Q2 GDP growth

GDP growth in Q2 accelerated to +3% q/q seasonally-adjusted and annualised (+0.9% in Q1), spurred by a recovery in manufacturing output (+11.5%) after a sharp fall in output in that sector in Q1. Encouragingly, both wholesale and retail trade and financial services also registered sound growth (+3.2% and +3.5%, respectively). The overall picture suggests that consumer demand is holding up reasonably well, despite market volatility (see above). However, mining output contracted by -5.8% in Q2, following a sharp rebound in the previous quarter, and further industrial disputes during the wage-bargaining season are likely to restrict production in H2. Overall, EH expects GDP growth of around +2.5% in 2013, with acceleration to +3.5% in 2014, subject to an expected global economic recovery and accompanying growth in demand for commodity-based imports.