- Germany's Q4 economic growth projected to pick up in today’s initial GDP report
- ZEW survey data for current conditions in Germany on track to tick lower
- US Small Business Optimism Index headed for modest decline after December surge
Tuesday brings a range of economic releases, including the first look at Germany’s fourth-quarter GDP data. Later, we’ll see new survey numbers via the ZEW indices for February, followed by January’s US Small Business Optimism Index.
Germany: Q4 GDP (0700 GMT): Europe’s biggest economy is expected to post moderately firmer fourth-quarter growth in today’s GDP report from the government.
The release follows last month’s preliminary numbers on full-year GDP for 2016, which saw a slightly faster rise over 2015’s pace: 1.9% vs. 1.7%. “The economic situation in Germany was characterised by solid and steady growth,” Destatis advised.
Perhaps, then, it’s no surprise that today’s numbers are expected to post a quicker pace in Q4 vs. Q3. Econoday.com’s consensus forecast sees quarterly output rising 0.5% in last year’s final three months, up from a sluggish 0.2% gain in Q3.
Survey data, however, points to a slower start for the new year, according to January data published by IHS Markit. “The first flash PMI of 2017 highlighted diverging performance in Germany’s private sector economy,” an economist at the firm recently noted. “Whereas manufacturers signalled an accelerating upturn fuelled by stronger domestic and international demand, growth slowed in the dominant service sector. Consequently, business activity across Germany as a whole rose at the slowest pace in four months.”
But it’s still early for deciding how this year’s Q1 will shape. Meanwhile, economic releases in recent weeks continue to point to a stronger macro trend for Germany overall, as today’s GDP report is expected to reaffirm.
Germany: ZEW Economic Sentiment Index (1000 GMT): Today’s ZEW release, which tracks sentiment among financial analysts, offers an early estimate of economic conditions for February.
Economists think that the numbers will hold mostly steady for the current and expectations data. That’s an encouraging sign coming after the sharp rise in the current situation index for January – a gain that lifted the benchmark to a five-year high. Economists think that the current situation yardstick will hold on to most of the previous pop, ticking fractionally lower to 77.2 in February from 77.3 previously.
Note, however, that the expectations data is on track to fall a bit more, sliding to 15 for this month’s reading from 16.6 previously. But that looks like noise in the wake of hard data that shows the economy humming along at a healthy pace at last year’s close. Last week’s bullish exports data, for instance, gave Germany a record trade surplus for 2016.
Short of a major downside surprise in today’s ZEW report, the near-term outlook still looks bright. Political risk, on the other hand, could be a factor as the year unfolds.
Recent opinion polls show that Chancellor Angela Merkel may face a tougher-than-expected road to winning a fourth term in September’s election. It’s premature to write the obituary for the Merkel era, but politically related turbulence can’t be ruled out at a time when populism and anti-establishment parties are gaining traction in Germany and throughout Europe.
US: Small Business Optimism Index (1100 GMT): The election of US President Donald Trump has energised the small-business community.
Business owners in this niche are anticipating material better economic conditions. The Small Business Optimism Index surged in December, rising to the highest reading since 2004, according to the National Federation of Independent Business (NFIB). “We haven’t seen numbers like this in a long time,” said NFIB’s president. “Small business is ready for a breakout, and that can only mean very good things for the US economy.”
One potentially encouraging sign that economic conditions are improving: a solid rebound in job growth in January for companies with fewer than 50 employees. Firms added nearly 62,000 workers last month, according to ADP – the biggest monthly gain since August.
Should we expect a repeat performance for the labour market in February? Today’s survey data for January may offer a clue. Economists, however, see a modest retreat. Econoday.com’s consensus forecast calls for a decline in the optimism benchmark to 104.5 from 105.8. That’s still an elevated level relative to recent history.
Nonetheless, a slide may be interpreted as a sign that small-business owners are tempering their expectations after the Trump administration’s rocky start to governing.
Disclosure: Originally published at Saxo Bank TradingFloor.com