Hopes for acceleration in economic recovery have resulted in some slowdown in real GDP growth rates in 2Q15, as the EU28 recorded +0.4% vs +0.5% in 1Q15 (same as in the euro area). Recovery lost some momentum in many Member States after a slightly more positive outlook in 1Q15. Among the major economies, Germany marginally accelerated (+0.4% vs +0.3%), France remained stagnant, Italy lost some ground (+0.3% vs +0.4%) – although 2Q figures confirmed the end of the recession – while Spain gained further ground (+1%). Outside the euro area, economic growth in the UK continued to outperform that of major euro area economies (+0.7%), whilst the highest quarter-on-quarter GDP growth amongst the whole EU was recorded in Poland (+0.9%). It is worth noting that no EU Member State recorded negative GDP growth rate or was in recession (i.e. second consecutive quarterly drop).
However, the widespread – albeit moderate – macroeconomic recovery continues to be disconnected from the construction cycle and is not yet driven by a major rebound in private investment (business and construction investment).
Several external conditions continued to be supportive of the EU economy and industry. Oil prices continued to decline, i.e. down to a six-year record low of US$44 per barrel (-58% since June 2014) and this downward trend is likely to continue. Other commodity prices also continued to decrease, putting pressure on commodity-producing countries and depressing their domestic demand. The US$/€ exchange rate has continued to fluctuate at around 1.12 (down from 1.36 in June 2014), thus benefiting European exports.
In the euro area, the Asset Purchase Programme or Quantitative Easing (QE) launched by the European Central Bank (ECB) has prevented sovereign debt yields from rising to worrying levels, and the whole macroeconomic environment has benefited from the agreement reached on the €86 billion financial support to Greece. In its last Monthly Bulletin the ECB has foreseen less positive developments in the macroeconomic environment over the next quarters, and President Draghi has announced that the QE may be extended beyond September 2016, while on 16 September the FED postponed its policy rate hike due to uncertainties in the global economic environment. The implementation of the Juncker Plan, which aims to boost private and public investment worth up to €315 billion, is expected to begin around the end of September.
In the EU, economic recovery remains conditional to subdued domestic demand and the slowdown in emerging economies due to plummeting revenues from commodities. Consumer price developments in the euro area continued to be subdued. Inflation rates remain around zero, i.e. +0.1% in the EU28 and +0.2% in the euro area in July 2015 – despite expectations of an increase in asset prices due to the implementation of the QE – reflecting low economic expectations.
The seasonally adjusted unemployment rate in the EU in July 2015 was 9.5% (10.9% in the euro area), i.e. down by 0.3% since January, ranging from 4.7% in Germany to 22.2% in Spain (which was 0.8% lower than in January). A constant, albeit moderate, decrease in unemployment rates has also been recorded in many other MS (among others Italy, Ireland, Portugal).
In addition, there are concerns of weak external demand over the forthcoming 3Q15 due to a slowdown in emerging economies. Worrying signs are coming from China, in particular, which has been one of the major engines of global GDP growth over the past decade: three-step devaluation of the Yuan by 3.5% in order to boost exports, repeated falls in the Shanghai stock market – for a fall of 40% from the peak – and lower-than-expected GDP growth in 2Q15 which will result in a slowdown in annual GDP growth (6.8% in 2015 after 7.4% in 2014) as a result of certain structural flaws (credit and housing bubbles, insufficient domestic demand, non-profitable state-led investment etc). However, there is consensus amongst most economists that the impact of the Chinese slowdown should not lead to any global recession.
Business and consumer confidence indicators have fallen slightly in 2Q15 but have remained steadily above 2014 levels since January 2015.
Leading indicators for the construction sector in 2Q15 revealed that essentially the ongoing economy recovery across the EU continues to be disconnected from the construction cycle, for which widespread recovery is lagging behind. Construction sector data showed mixed signs and diverging developments in major euro area economies.
Industrial production was stagnant in the EU, with moderate but continued growth in Germany, sharp falls in France, a recovery in Italy and Spain (more pronounced in the latter) but still remaining at very low levels in historical terms.
Construction production fell across the EU and in Germany (where construction production levels have remained much higher since 2008 than other comparable EU economies), France and Italy, while it increased by a negligible +0.1% in Spain.
Construction investment recorded a drop in Germany and France (more pronounced in the latter), while it continued to be on the rise in Spain. Q215 data confirmed that, despite some improvement due to higher housing affordability for households, the residential subsector has been impacted more severely than any other. Since the onset of the crisis in 2008, civil engineering has proved more resilient and continued to record more vigorous performances, despite severe public spending constraints.
Cement manufacturing indices in 2Q15 remained around record lows across the EU, having recorded a negligible quarterly increase in the EU, with drops in Germany and France (where indices reached a new record low) and remaining more or less unchanged in Italy and Spain, around very low levels in historical terms.
Written by Cembureau
Read the article online at: https://www.worldcement.com/europe-cis/15102015/cembureau-quarterly-economic-report-part-one-highlights-778/