For the first time in nearly six quarters, we have seen some life coming back in the lending survey.
Although the numbers are not extraordinarily outstanding, at the same time, they do provide enough catalyst for the ECB to put breaks on their ultra-loose monetary policy.
Industrial production (hard data) in the Eurozone is surging and it is tentative evidence that the soft data such as business survey has started to make its way in the hard data. The sturdy path of output in this data is going to have significant impact on the second quarter GDP reading confirming the economic growth accelerating.
The business survey in Germany have strengthened further and the industrial output has surged which accounts nearly a quarter of the economy. We expect the GDP growth show more colours in Germany even if large chuck of May’s strength is unwound in June. The employment rate has been stable at 3.9 percent in Germany.
In France, we are out of the major political uncertainty, and the economy has expanded during the first quarter despite inflation crippling consumer’s spending. The retail numbers for this quarter confirms that we will have significant positive contribution for this quarter’s GDP.
Policy uncertainties are receding in Italy and the unemployment rate is dropping. The economic recovery has resumed however, we still need more action on the policy reform side as they have not yielded the same amount of results as they did in Spain. However, it is moving in the right direction and the economic growth forecast for this year is 1.3 percent.
Spain has surprised investors with its economic growth and the economy has expanded more than the forecast. We think there are good chances the strong momentum would sustain for some time and the economy would perform better than expectation in the third quarter. Our growth forecast for Spain sits at 2.8 percent for this year.
