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World Economy

16

OPEC Monthly Oil Market Report – August 2017

Graph 3 - 4: Euro-zone CPI and lending activity

Graph 3 - 5: Euro-zone PMIs

Industrial production

grew by 4.0% y-o-y in May, after 1.2% in April. Retail sales growth in value terms was

again an important support factor for Euro-zone growth, increasing by 3.7% y-o-y in June, after 3.5% y-o-y in

May. As these indicators have remained at considerable levels over the past months and demonstrate a

healthy dynamic, the ongoing improvements in the underlying economy are forecast to be carried over into

the 2H17 and the coming year.

The latest

PMI

indicators remained at very high levels and point to a continuation of Euro-zone

improvements. The manufacturing PMI moved down slightly to 56.6 in July, compared to 57.4 in June, which

was its highest level since the initiation of the index. The important PMI for the services sector, which

constitutes the largest sector in the Euro-zone, remained stable at a level of 55.4 in July, the same number

as in June.

The underlying momentum has led to an upward revision in the 2017

GDP growth

forecast for the

Euro-zone, which now stands at 2.0%, compared to 1.8% in the previous month. Given that some of this

momentum will be carried over into 2018, the next year’s GDP growth forecast was also revised up to 1.8%

from 1.7% in the previous month. Among the political uncertainties, Brexit procedures and the upcoming

German elections remain important factors to monitor. These factors need to be seen in combination with a

potential reduction in monetary stimulus towards the end of the year.

UK

The most recent developments in the Brexit negotiations have shown only slow progress as it seems

uncertainty about details of the procedure remain high. In the meantime, the economy is showing some

negative impacts due to these uncertainties, but in general the UK economy remained relatively robust.

After GDP growth of 0.2% q-o-q seasonally adjusted (sa) in the 1Q17, GDP growth in the 2Q17 rose to a

level of 0.3% q-o-q sa. The upcoming releases of GDP related detail will show how the components of GDP

developed, but it seems likely that investment and private household consumption will face challenges in the

near-term due to rising inflation and the numerous uncertainties due to Brexit. However, for the time being

the unemployment rate remains very low at 4.4%, as shown in the latest available number from April, while

wage growth in April and May stood at only 1.4% y-o-y and 1.8% y-o-y, respectively. This compares to yearly

averages of 2.4% in 2016 and 2.6% in 2015. This low wage growth now compared to inflation numbers of

2.9% y-o-y in May and 2.6% y-o-y in June. This compared to average inflation of 0.7% y-o-y in 2016 and 0%

in 2015. These rising inflation numbers may also keep the Bank of England thinking about raising interest

rates. Falling real incomes in the near-term may become a reality and a negative factor for consumption. The

GfK consumer confidence index at least is at its lowest point since last year’s referendum. In the meantime,

exports

continue to benefit from a relatively weak pound and hence have benefitted from an improving

competitive position. Exports increased by 12.6% y-o-y in May, following a 10.2% y-o-y rise in April. In

addition, the

PMI

for manufacturing remained at a high level of 55.1 in July, higher than the already elevated

level of 54.2 in June. Also, the services sector PMI increased slightly to 54.8 in July, from 53.4 in June.

Industrial production

continued showing some weakness, falling by 0.3% y-o-y in May, coming from -0.8%

-4

-3

-2

-1

0

1

2

3

-1

0

1

2

3

Jul 12

Nov 12

Mar 13

Jul 13

Nov 13

Mar 14

Jul 14

Nov 14

Mar 15

Jul 15

Nov 15

Mar 16

Jul 16

Nov 16

Mar 17

Jul 17

CPI (LHS)

MFI lending (RHS)

Sources: Statistical Office of the European Communities,

European Central Bank and Haver Analytics.

% change y-o-y

% change y-o-y

55.4

56.6

51

52

53

54

55

56

57

58

Jul 16

Aug 16

Sep 16

Oct 16

Nov 16

Dec 16

Jan 17

Feb 17

Mar 17

Apr 17

May 17

Jun 17

Jul 17

Index

Sources: IHS Markit and Haver Analytics.

Services PMI

Manufacturing PMI