Advanced Economies GDP in Q2

For many G-7 and Western European economies, Q1 and Q2 GDP were a study in contrasts. German Q1 GDP accelerated by 0.7% (q-o-q) which helped to lift the y-o-y rate to 1.8%. Because Q1 had been so upbeat, the forecast for Q2 was initially for payback. Fortunately, growth did not falter as sharply as expected, supported by exports and private consumption gains which left y-o-y GDP at a still-decent 1.7%. This pace of activity is projected to remain in place over the rest of 2016 before slowing somewhat in 2017. The Q2 story for France was disappointing. After a positive Q1 start, Q2 activity stalled. Q1 GDP growth was supported by tourism-related spending linked to this summer’s Euro football championships, but this effect faded going into Q2. Moreover, consumer and business sentiment have been eroded by the lacklustre economic environment and terrorism attacks. In Italy, confidence is even more downbeat on the back of stalled momentum in industry and domestic demand. The slowdown in global demand has certainly not helped the externally reliant sectors of many economies. Despite relatively stronger activity predicted for the US, Q1 and Q2 GDP growth did not meet many observers’ expectations. Consequently, growth is not forecast to surpass the 2%-mark this year. Part of this is due to the stronger US dollar which has hit demand for exports. Despite positive consumption fundamentals, firms are running down stockpiles rather than raising production to meet demand. 2017 should see more robust activity. Meanwhile, the UK recorded a very upbeat Q2 outturn, but the marked deceleration predicted for Q3 and Q4 illustrates concerns over the immediate impact of the Brexit vote. Next year’s growth trend looks even more worrisome.

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