Japan

Monthly data for January and February suggest strong growth in the economy after a rather lacklustre Q4 2013. Industrial output in the first two months of the year was over 3% above the quarterly average of Q4 2013, with retail sales 1.7% higher…     

Activity

GDP growth accelerated from 0.4% in 2013Q1 to 0.7% in 2013Q2. But while the headline growth rate was encouraging, the expenditure breakdown disappointed somewhat. Net trade made no contribution to growth and stockbuilding accounted for a large chunk of the contribution from domestic demand…     

Europe

After two quarters of 0.3% GDP growth, the signs are that the Eurozone recovery moved up a gear in Q4 last year, with the latest industrial and consumer data pointing to buoyant GDP growth in the period. Meanwhile, in December, the composite PMI climbed to a five and a half year high, a sign that the recovery strengthened as the quarter progressed. For now, we have pencilled in GDP growth of 0.5%, which would match the gain recorded in Q1 2016.     

Forecast Overview

Though GDP rose by 0.2% in November, this came on the back of a poor run and, with July’s surge dropping out of the calculation, the rolling three‐month rate slowed to a six‐month low of 0.3%. The business survey data has also flagged a loss of momentum, with the Q4 composite PMI at its lowest level since Q3 2016. Based on past form, the PMI would be consistent with virtual stagnation in GDP in Q4, but our short‐term model points to a slightly firmer outturn of 0.3%. This would mean that 2018 as a whole saw GDP growth of 1.4%, 0.1pp higher than our forecast from three months ago, which reflects favourable historical revisions published in the Q3 national accounts release.     

UK Overview

High frequency data have continued to report evidence of gathering momentum and imply that Q2 is likely to have seen much stronger GDP growth than we previously thought. This has led us to raise our 2013 growth forecast from 0.7% three months ago to 1.1% now. But while we believe that a sustained recovery is well under way, our forecasts for next year are slightly weaker because the boost from stronger growth in the near term is more than offset by the impact on UK export prospects of downgrades to our global forecasts…     

Eurozone

Following the 0.2% expansion in Q3, our expectation was that the eurozone economy would start recovering in Q4. However, the latest German data, which shows the economy flirting with recession in H2, has dashed hopes that eurozone GDP growth accelerated substantially in the final quarter of last year.     

Company sector

Recent national accounts data suggest that the corporate sector has been playing a bigger role in the economic recovery than previously thought. Business investment rose by 8.7% over the year to Q4 2013 and surveys of investment intentions point to strong growth ahead. But what will hopefully be a sustained rise in investment is starting for a very low base…     

Forecast Overview

The national accounts reported quarterly GDP growth of 0.4% in Q3, up from the preliminary estimate of 0.3%. This continued the run of volatile quarterly readings, with output having contracted 0.2% in Q2. And a series of soft monthly GDP readings, along with some very poor business survey results, suggest that GDP is likely to have flatlined in Q4. This would result in GDP growth of 1.3% for 2019 as a whole, in line with the 2018 outturn which was the weakest since the financial crisis.     

United States

Annualised real GDP growth was revised up from 2.4% to a final reading of 2.6% in Q4 2013. The growth mix was more positive than initially estimated with final sales posting a solid 2.7% advance and inventories neutral for growth. Consumer spending and business investment trends remain favourable, while the government spending drag was offset by a boost to growth from net trade…     

United States

Real GDP advanced by 3.5% on an annualized basis in Q3 2016, with final sales up 3.0% and inventories adding 0.5pp. We estimate that growth moderated to 2.4% in Q4 2016. This would mean that real GDP growth averaged 1.6% in 2016, and we expect it to firm to 2.3% in 2017. We see the Trump administration focusing more on its pro‐growth fiscal agenda than on a protectionist and anti‐immigration platform. We expect that the peak growth effect from increased government infrastructure outlays and tax cuts will occur in early 2018, with average growth that year expected around 2.5%.     

Trade and the balance of payments

The trade data has been particularly volatile this year. After a weak start to 2013, the volume of goods and services exports increased by 3% quarter‐on‐quarter in Q2. But monthly data since has again been weak and a substantial decline in exports looks likely for Q3…     

Eurozone

All the signs are that Q2 will see Eurozone GDP growth exceed Q1's well above‐trend rise of 0.6%. In addition to the business surveys continuing to rise, quarterly industrial production and retail sales growth also probably accelerated in Q2, closing the previous gap between the surveys and hard data. This points to a robust rise in GDP of 0.7% to 0.8% in Q2     

Eurozone

The recent flow of economic data supports the view that Q1 will have seen stronger quarterly GDP growth than Q4's 0.4% gain. Indeed, given the composite PMI's healthy end to Q1, the strength seen in Q1 may continue next quarter. As a result, we have upgraded our forecast for GDP growth in Q2 and now pencil in a second consecutive quarterly gain of 0.5%.     

Forecast Overview

The monthly GDP data was particularly ‘noisy’ around the turn of the year, with a 0.3% m/m fall in December being followed by rises of 0.5% in January and 0.2% in February. This volatility has had the effect of dampening quarterly growth in Q4 2018 but boosting Q1 2019. Q1 was probably also boosted by precautionary stockbuilding by firms preparing for a “no‐deal” Brexit. We expect quarterly GDP growth of around 0.5% for Q1.     

World Economy

Near‐term US growth prospects have been damaged by the two‐week government shutdown and dispute over raising the debt ceiling in the first half of October. We estimate that Q4 US GDP growth (on an annualised basis) will have been cut by up to 0.5% points. We now forecast economic growth of 1.6% for the US in 2013 and 2.9% next year.…     

United States

Real GDP rose by 2.1% on an annualised basis in Q4 2016, with consumer spending up 3.5% and inventories contributing 1.0pp to growth. Despite solid “soft” data in Q1 2017, we see GDP growth slowing to less than 1.0% as back‐to‐back monthly declines in real consumer outlays constrain activity. Business investment and trade flows are firming only gradually, while rising inflation is taking a greater bite out of real income and spending.     

United States

Real GDP grew by 3.2% on an annualized basis in Q3, with final sales advancing a more modest 2.4% and inventories contributing a solid 0.8pp. Overall, the data was indicative of a 2–2.5% underlying pace of growth. We estimate Q4 growth of around 3.2% annualized, meaning the economy grew by 2.3% in 2017 as a whole.     

Eurozone

The Eurozone economy probably reached its peak velocity in Q2, when GDP rose 0.6% q/q. The figures available for Q3 provide something of a diverging picture between soft and hard data. The composite PMI – which has been the best predictor for quarterly GDP growth – averaged 56.0 in Q3, only slightly below the 56.6 seen in Q2. And the EC's Economic Sentiment Indicator was actually stronger in Q3 after reaching a new multi‐year high in September. But some of the hard data suggest that growth may be softer than indicated by the strong surveys. In particular, retail sales have been surprisingly weak despite high consumer confidence and strong employment growth, although we suspect weatherrelated factors have been at play.     

Europe

After two quarters of moderate GDP growth of 0.3% in the second half of last year, it appears that the Eurozone recovery regained a bit of steam in early‐2016. Admittedly, this is not reflected in the performance of the business surveys; in Q1 the average reading for the composite PMI was the lowest in a year. But the PMI has not been a very reliable indicator of GDP growth recently. Hard data for two months of Q1 are available for most of the key indicators and these paint a much more positive picture. Industrial production is on track to rise by about 1% over the quarter, its fastest pace since early 2011. Meanwhile, retail sales and car registrations are both on track to grow rather more strongly in Q1 than Q4.     

Company Sector

The latest national accounts data suggest that the corporate sector is still playing very little part in the recovery. Though business investment rose by 2% in Q3 2013, it remained more than 5% lower than a year before and is still 24% lower than the early‐2008 peak…