巴黎银行-欧洲-宏观策略-欧元区增长：柔性补丁-20181030-8页_1mb

FOCUS | EUROZONE Summary

Core Content

This report analyzes the economic performance and outlook for the Eurozone, particularly focusing on the Q3 2018 GDP growth slowdown, the role of the European Central Bank (ECB), and the implications for financial markets, especially the German Bund.

Key Messages

• Eurozone Growth is a Soft Patch: The slowdown in Q3 GDP growth to 0.2% q/q is viewed as a temporary soft patch rather than a sign of a broader economic downturn.
• Domestic Demand Resilience: Despite the slowdown, domestic demand is expected to remain strong enough to support growth of around 0.4% q/q going forward.
• ECB Policy Outlook: The ECB is likely to continue its current course and end net purchases in December. There is no immediate indication of extending quantitative easing (QE).
• Bund Target: The market view remains that the Bund will reach its year-end 2018 target of 0.75%.
• Italy's Impact: The weak performance in Italy is a concern, but it is not expected to significantly impact the broader Eurozone growth outlook.
• German Car Production Volatility: A sharp decline in German car production due to the new WLTP emissions standards is a key factor behind the Q3 slowdown. This is seen as temporary and not indicative of a long-term trend.

Trade Idea

• The Bund is expected to follow a medium-term rising trajectory, driven by structural EUR 30y10y paying position.
• The Q3 slowdown is not considered a major factor in the current market outlook, especially with inflation showing upward momentum.
• Entry at 1.505%, current at 1.45%, and target at 2%.

Growth Breakdown

• Q3 GDP Growth: 0.2% q/q, below both consensus and expectations.
• Annual Growth: 1.7% in Q3, the lowest since Q4 2014.
• Country-wise Outlook:
  • Germany: Expected to grow at 0.4% in Q4 and 0.5% in Q1 2019, before moderating.
  • Italy: Stagnation in Q3, with potential political implications.
  • France: Growth picked up to 0.4% q/q, below market expectations.
  • Spain: Expected to slow to 0.5% q/q (data out on 31 October).

Domestic Resilience to External Shocks

• Domestic Demand: Remains stable at 1.8%, contrasting with a sharp slowdown in exports (3.5% y/y in H1).
• Labour Market: Strong job creation and rising participation rates support consumption.
• Credit Conditions: Easy credit conditions persist, supported by ECB's accommodative stance.
• Investment Outlook: Investment remains supportive, with gross fixed investment still 4% below pre-crisis levels.
• Fiscal Policy: Expected to become more supportive in 2019, with a fiscal deficit widening by 0.4% of GDP.

Upside Risks

• US Growth: Strong US fiscal stimulus could boost global and eurozone growth.
• Trade Tension De-escalation: Agreement between the US and China to remove tariffs could support global trade.
• Investor Confidence: "Animal spirits" may drive unexpected investment growth due to high capacity utilization.

Downside Risks

• Trade Tensions: Escalation in tariffs or non-tariff barriers could damage global and eurozone growth.
• Brexit Uncertainty: Could affect investor and household sentiment.
• Italy's Political Risks: Market volatility and potential political tensions ahead of the EU Parliament elections in May 2019.
• Tighter Financial Conditions: Exchange rate movements and rising bond yields may constrain growth.
• Emerging Markets Turmoil: Could impact global trade and eurozone exports.

Conclusion

The Eurozone economy is expected to recover from the Q3 slowdown, with growth returning to around 0.4% q/q in Q4 and Q1 2019. The ECB is unlikely to extend QE beyond December, and the Bund is still on track to reach 0.75% by year-end. While there are risks, particularly from Italy and external factors, the underlying economic fundamentals remain solid, and the outlook for the Eurozone is cautiously optimistic.

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Disclaimer

This document is for informational purposes only and does not constitute an offer to sell or purchase any financial instruments. It is not a prospectus or public offering. All estimates and opinions are as of the date of the report and may change. The information is not intended to provide investment, tax, or legal advice.