FOCUS 30/10/2018 2
We expect any recovery in German production to be
moderate and back-loaded. First, available data on car
production for September suggest that weakness
persisted at the end of Q3.
Second, both the Ifo and the PMI readings for October
suggest weakness in the manufacturing sector is
extending into Q4 (and into services).
Third, we think that a great deal of uncertainty regarding
emissions standards and their implementation persists.
This arises from: a) court-mandated driving bans in large
German cities, about which there is still not enough clarity
on which models are affected; b) motorists being offered
discounts by the car industry to buy new models as well
as hardware upgrades for cars meant to make their
emissions levels compliant.
We think that following a stagnant Q3, German GDP will
expand at 0.4% in Q4 and 0.5% in Q1 2019, before
moderating again in the remainder of next year. This
results in our full-year estimates of 1.6% for both this year
and next – roughly at trend, which we peg at about 1.5%.
Implications for our eurozone baseline
We are taking down our growth forecasts marginally for
this year, but see no reason to change the outlook
materially: this is a soft patch, not an inflection point.
We expect eurozone growth rates to return to levels in
line with H1 (of around 0.4% q/q), in both Q4 and Q1.
This would imply a 0.1pp downward revision to our 2018
growth forecast to 1.9%. For 2019, we keep our below-
consensus growth forecast of 1.5%. We see two
countervailing forces affecting eurozone activity.
On the negative side, uncertainties from Italy, Brexit,
and global trade tensions persist and may weight on
activity. Further, in some economies and sectors trend
capacity utilisation is high and shortages of labour will
continue constraining production (see Fig 3).
On the positive side, domestic fundamentals are still
solid (see next page), monetary policy normalisation will
proceed slowly, and fiscal policy will turn more
supportive. 。