Good morning
German GDP growth remains a tugboat for the Eurozone
Germany, the engine room of Europe, continues to show that growth is achievable despite the aneamic recovery of the euro area. This morning’s figures show Germany grew at the sharp pace of 1.8% year-on-year in Q2, as a rise in household and government spending as well as strong international trade outweighed a modest decline in investment.
Unfortunately, Germany’s growth story isn’t shared by many of its southern neighbours, with Italy, Spain and Portugal yet to return to pre-crisis levels of national output. As such, Eurozone growth figures at 0900BST today should remain relatively stagnant and show an economy that’s walking, not sprinting to a recovery.
The euro’s persistent weakness against most other G10 currencies (except Sterling of course) reflects this, and will continue to do so until Draghi’s cocktail of policy tools begins to kick in to rejuvenate southern Europe’s debt-laden economies.
Chinese growth expected to decelerate further as retail sales and industrial production slip
As the Chinese economic boom slows, policymakers in Beijing are hoping that a previous dependence on manufacturing, raw materials and wholesale goods will give way to a middle-class driven, consumer services led economic profile. Today’s retail sales and industrial production figures unfortunately don’t tell this story.
Retail sales slowed to 10.2% year-on-year which, when read independently, seems impressive, but this figure was tracking close to 14% in early 2015 and has been on the back foot ever since. This, coupled with fixed asset investment (a proxy for stable growth) growing at half the rate it was a few years ago, suggests that the economic rebalancing in China has a long way to go.
The Aussie dollar, a key conduit to Chinese international trade, softened modestly on the back of the release, but Australia’s carry trade has remained intact, keeping AUD/USD close to multi-month highs.
US Retail Sales expected to slow in July
It’s a relatively quiet end to the week, with US retail sales at 1330BST the highlight of the calendar. After a strong June showing, retail sales growth is expected to slow to 0.4% from 0.6% and a deceleration beyond this could take some of the wind out of the dollar’s sails.
Have a great weekend.