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World Economy

18

OPEC Monthly Oil Market Report – September 2017

The underlying momentum has led to an upward revision in the 2017 GDP growth forecast for the Euro-

zone, which now stands at 2.1%, compared with 2.0% in the previous month. The 2018 GDP growth forecast

remained unchanged at 1.8%. Political uncertainties, Brexit procedures and the upcoming German elections,

as well as monetary policies remain important factors to monitor.

UK

As

Brexit

negotiations continue, little progress has been made so far and the most sensible among all the

numerous issues currently seems to be the break-up bill, which has been subject to negotiations lately. The

UK reemphasised its case against the EU’s Brexit bill of up to €100bn, while EU officials seem to consider

this to be a conditio-sine-qua-non. Numerous important issues have not been touched yet, while already

about a quarter of the negotiating time has elapsed since kicking-off the two year negotiation period in

March. As some shift in the UK has become visible in the past weeks towards a soft exit over a hard-exit, the

probability of a solution via, for example, the UK participating in the framework of the European Economic

Area (EEA) or the European Free Trade Association (EFTA) is again a possibility. In this respect, the UK’s

chief negotiator did not rule out that Britain would continue paying into the EU’s budget after Brexit in March

2019.

After GDP growth of 0.2% q-o-q seasonally adjusted (sa) in 1Q17,

GDP growth in 2Q17

was confirmed at

0.3% q-o-q sa. Interestingly, household expenditures retraced to only 0.1% q-o-q growth, the lowest level

over the last two-and-a-half years. However, for the time being the unemployment rate remains very low at

4.4%, as shown in the latest available number from May. Positively, wage growth in May and June stood at

2.0% and 2.8% y-o-y, respectively. This compares to inflation numbers of 2.6% y-o-y in both May and June,

i.e. approximately matching these levels. Rising inflation will remain a very sensitive issue for the Bank of

England when considering changing its monetary policy stance in the next months. The

GfK consumer

confidence index

improved slightly, but remained at a low level of -10 index points in August, compared

with -12 in July. Given the low sterling pound value, exports compensated some domestic economic

challenges, as exports increased by 9.6% y-o-y in July, after reaching 11.1% y-o-y in June. In connection to

this more positive development, the

PMI

for manufacturing increased to 56.9 in August, after an already high

level of 55.3 in July. The services sector PMI declined slightly, but remained high at 53.2 in August, after

reaching 53.8 in July. With indicators supporting a gradual slowdown in the UK economy, the growth forecast

remains unchanged at 1.5% for 2017. Growth in 2018 is forecast at 1.4%.

Graph 3 - 6: UK PMIs

Graph 3 - 7: UK industrial production

53.2

56.9

48

50

52

54

56

58

Aug 16

Sep 16

Oct 16

Nov 16

Dec 16

Jan 17

Feb 17

Mar 17

Apr 17

May 17

Jun 17

Jul 17

Aug 17

Index

Sources: CIPS, IHS Markit and Haver Analytics.

Services PMI

Manufacturing PMI

0.4

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

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

Sources: Office for National Statistics and Haver Analytics.

% change y-o-y