Market Economics | Interest Rate Strategy - BNP PARIBAS ...

Key Data Preview
65
60
55
50
45
40
35
30
Chart 3: Eurozone PMI by Sector
Services
Manufacturing
99 00 01 02 03 04 05 06 07 08 09 10
Source: Reuters EcoWin Pro
Jan (f) Dec Nov Oct
Manufacturing 57.1 57.1 55.3 54.6
Services 54.2 54.2 55.4 53.3
Composite 55.5 55.5 55.5 53.8
Key Point:
PMI data will again highlight divergence between the
core and peripheral economies.
BNP Paribas Forecast: Internal Divergence
Eurozone: ‘Flash’ PMIs (January)
Release Date: Monday 24 January
Activity in manufacturing has re-accelerated since autumn
last year, with the eurozone PMI for the sector increasing
in each of the three months to December.
The levels of the headline index and the main sub-indices
for orders and output have risen back towards their cycle
highs of spring 2009. The employment sub-index has also
improved markedly, rising to its highest level in more than
a decade (to 53.8 in December).
This strength, however, has been driven largely by robust
activity in the ‘core’ countries and in Germany in particular.
The latter’s headline, output and orders sub-indices have
all risen back above the 60 level, consistent with unusually
strong growth rates in the manufacturing sector.
The growth rates signalled by the peripheral countries’ PMI
data, while improving, have been much less elevated. The
service sector PMIs in the peripheral countries have been
deteriorating, consistent with weak consumer demand, in
turn due to fiscal austerity programmes.
In Germany, in contrast, the service sector has been doing
well, as the expansion becomes more broad based. This
has been insufficient to prevent the service sector PMI for
the eurozone as a whole from losing ground.
The input price sub-index for the manufacturing PMI in the
eurozone has risen sharply, due to commodity price rises.
Output prices have also been rising, but by less.
Chart 4: UK GDP vs Composite CIPS
Source: INSEE, Reuters EcoWin Pro
Q4 (f) Q3 Q2 Q1
GDP % q/q 0.3 0.7 1.1 0.3
GDP % y/y 2.4 2.7 1.6 -0.3
Ind Prod % q/q 0.4 0.6 1.1 1.0
Services % q/q 0.2 0.5 0.6 0.3
Key Point:
We expect a sluggish 0.3% q/q pace of expansion,
held back to a large extent by snow-related
disruption.
BNP Paribas Forecast: Sluggish
UK: GDP (Prel Q4)
Release Date: Tuesday 25 January
We expect GDP growth to decelerate to 0.3% q/q during
Q4, held back by snow-related disruption. Industrial
production growth had been solid in the first two months of
the quarter. However, we expect a weak December
reading for manufacturing to dampen the quarterly
average. Business services output growth ground to a halt
during Q3, consistent with the dip in the services sector
CIPS. We expect a slight improvement during Q4, though
again a weak December is likely to hold back the quarterly
average.
Manufacturing and business services accounted for only
0.1% point of the 0.7% q/q expansion during Q3. The bulk
of the growth was accounted for by construction and
government output. We expect construction to continue to
decelerate from the super-strong pace recorded in mid-
2010. Similarly, distribution output is likely to have suffered,
not least given the poor performance of retail sales during
Q4.
Overall, we expect a sluggish pace of expansion though
dampened to a large extent by temporary weather related
influences. These should reverse during Q1 helping growth
to reaccelerate. However, at that stage the impact of fiscal
tightening should prevent growth from rebounding
drastically.
Market Economics 20 January 2011
Market Mover
72
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