Weekly Export Risk Outlook


​In the headlines:
- Eurozone: Return in confidence confirmed
- Germany: Regaining momentum
- India: Weakening, but not yet a crisis
- Poland: GDP growth may have bottomed out in Q2


Figure of the week: +7.5% - Philippine’s y/y Q2 GDP growth

​Eurozone: Return in confidence confirmed

Eurostat surveys in August confirmed that there is a growing level of confidence in managers in industry, services and retail sectors. The construction sector was the only one to experience weaker confidence and the two most important sectors (industry and services) improved markedly, by +5.1 points (the highest increase since Q3 2009) and +5.5 (the highest since Q1 2010), respectively. Expectations for production and for order books in the next three months improved significantly, although the latter remain below normal levels. For the services sector, and for the first time in 15 months, the survey shows that managers expect demand to increase in the next three months, although they consider that the business climate remains weak. Confidence within the industrial and services sectors in all of the four largest economies improved (with the exception of services in France), with the strongest increases registered in Germany (see below). Order books are set to recover sharply in Spain and Italy, in line with EH’s scenario of an export-driven moderate recovery in these countries in 2014.

Germany: Regaining momentum

After a weak start to 2013 (GDP growth in Q1 was 0%), the economy regained momentum in Q2 (+0.7% q/q), mainly driven by domestic demand. According to results from Destatis, positive contributions were made particularly by both consumer spending (+0.5% q/q) and capital formation in construction (+2.6%), with the latter also probably influenced by some catch-up effects following the long winter. There was also a recovery in investment in machinery and equipment, which registered an increase again (+0.9%) after a long period of decline. Exports increased by +2.2% despite the challenging global environment. With imports increasing at a somewhat slower pace than exports (+2%), net exports contributed +0.2pps to overall GDP growth, while a decline in inventories resulted in a slightly negative contribution of -0.1pps.

India: Weakening, but not yet a crisis

Last week’s GDP figures and recent PMI data suggest that the weakness in the economy was evident before the recent rapid depreciation in the INR and capital outflows. In turn, this suggests that domestic factors (including policy inertia and structural impediments), as well as international concerns (prospects of Fed tapering), explain the downturn. GDP growth in April-June (Q1 of FY2013/14) was +4.4% y/y, compared with +4.8% in the previous quarter and an annual average +7.1% in 2000-11. Meanwhile, data for manufacturing in August indicate the first contraction since early 2009. Currency weakness (INR depreciation of around 10% in August) and associated loss of confidence are likely to result in worse data to come, although export performance should improve. Monetary policy will now tend towards tightening (limiting growth potential), import costs are higher and government finances will deteriorate. EH revised downwards its GDP forecasts, to +4.7% in 2013 and +5.5% in 2014, but does not expect a full-blown financial crisis, although corporate insolvencies and NPLs will increase.

Poland: GDP growth may have bottomed out in Q2

Q2 real GDP growth picked up slightly to +0.8% y/y (+0.5% in Q1) and +0.4% q/q (+0.2% in Q1) as a result of fiscal stimulus and strengthening exports. Government consumption increased by +3.9% y/y in Q2 (-0.5% in Q1), private consumption by +0.2% (flat in Q1) while fixed investment contracted by -3.8% (-2% in Q1). Moreover, inventories subtracted -1.9pps from Q2 growth (-0.5pps in Q1). Export growth accelerated to +5.1% y/y (+1.3% in Q1) while imports continued to decline, by -0.6% (-1.7% in Q1), so that net exports contributed +2.5pps to overall Q2 growth (+1.4pps in Q1). Against a background of recent budget revisions with the aim of stimulating the economy, EH expects economic activity to gain further momentum in H2, resulting in full year growth of around +1% in 2013. However, the fiscal slippage could be a concern if it damages the government's credibility. Today, the Monetary Policy Council kept the key policy interest rate unchanged at 2.5% today.