3 Numbers: Another upbeat Eurozone GDP report expected for Q2
- Eurozone output for Q2 is on track to rise 0.6% in today’s flash GDP
- There are welcome signs of growing momentum behind the GDP uptrend in Europe
- The US ISM Manufacturing Index is expected to backtrack after surging in June
- Economists expect a rebound in light-vehicle sales for the US in July
Output increased 0.9% in Q2 for Europe’s fourth-largest economy, slightly faster than Q1’s strong 0.8% rise. Factor in that the three-largest economies – Germany, France, and Italy – are growing too, based on the latest estimates, and it all adds up to a solid tailwind for projecting another round of healthy growth for today’s first look at the euro area’s profile during the April-through-June period.
Focus-Economics.com last week advised that “the Eurozone’s growth spurt likely remained strong in the second quarter as incoming data is bright.” Economists recently lifted GDP forecasts for a dozen euro area countries, including France, Greece, Italy and Spain, the consultancy noted.
Official confirmation of the bullish outlook is expected in today’s official Q2 GDP report from Eurostat. Econoday.com’s consensus forecast sees output rising 0.6% in Q1. The prediction anticipates that economic activity will expand at or above the 0.5% mark for three straight quarters for the first time in nearly a decade.
"Momentum is there. We're getting a broadening out of countries in terms of economic performance,” said the chief international economist at ING. “It’s not just the likes of Germany driving it all forward ... There does seem to be self-sustaining momentum.”
In contrast with the competing Manufacturing PMI, the ISM’s survey data for the sector closed out the second quarter on a surprisingly strong note. The index jumped to 57.8, up sharply from May’s 54.9 and edging out February’s reading to reach the highest level in nearly three years.
Survey data published by IHS Markit also paints an upbeat picture for manufacturing, although the preliminary PMI profile for July (published last week) points to a continuation of moderate growth.
Economists are expecting that the wide gap between the two manufacturing benchmarks will narrow today as the ISM Manufacturing Index gives up some ground in July. Econoday.com’s consensus forecast calls for a drop in the benchmark to 56.4. Although that’s still a healthy pace that’s well above the neutral 50 mark, the slide from June’s 57.8 suggests that manufacturing activity is on track to maintain a moderate rate of expansion in the third quarter.
Good news, but the crowd’s forecast suggests that the odds are still low that we’ll see a hefty acceleration in growth in the immediate future.
For context, consider that retail sales overall have been slipping a bit in the two months through June. The slide marks the first back-to-back declines in almost a year. Is the softer trend a sign of trouble for the consumer spending in the third quarter and beyond? It’s too soon to know, but the retail appetite for vehicles last month offers a key clue.
Industry analysts have been managing expectations down recently. Analysts at Edmunds last week predicted that auto sales for July are on track for the biggest decline of the year so far. “July is historically a strong month, but with disappointing sales and inventories still building, something needs to give,” explained the executive director of industry analysis at Edmunds.
The consensus forecast for today’s combined auto and light-truck data, however, sees a modest improvement for last month, according to Econoday.com. After trending lower in this year’s first half, sales are expected to perk up by 300,000 to 16.8 million units (seasonally adjusted annual rate) in July – the biggest monthly advance to date in 2017.
Auto sales may still be facing headwinds, but the kickoff to the second half of 2017 is projected to start with a moderate round of growth for the combined numbers in the retail market for autos and light trucks. If so, the news may be a sign that consumer spending may be headed for a rebound in Q3.