EMU: net-exports supported growth in Q2

The preliminary estimate of euro zone Q2 GDP confirmed the first estimate, showing only meagre growth. In the euro area, GDP expanded by 0.2% Q/Q in the April to June period, as suggested by the first estimate. More interesting was the first release of the details, which were disappointing too. Household consumption fell by 0.2% Q/Q (from 0.2% Q/Q in Q1), while a decline by 0.1% Q/Q was expected and government spending contracted unexpectedly (-0.2% Q/Q from 0.4% Q/Q). Gross fixed capital formation slowed more than expected, posting only a 0.2% Q/Q increase (from 1.8% Q/Q in Q1), while a 0.8% Q/Q rise was expected. Both exports (1.0% Q/Q) and imports (0.5% Q/Q) held up relatively well, adding 0.2% Q/Q to growth and also change in inventories made a positive contribution to growth (0.1% Q/Q). The drag from household consumption was somewhat bigger than expected and also investments slowed more than forecasted, which makes the report somewhat weaker than expected. The positive contribution from net-exports is positive news, but the outlook is less so as recent data suggested that export orders are slowing sharply due to the global economic slowdown.

In July, German factory orders surprised on the downside of expectations, falling by 2.8% M/M while a decline by 1.5% M/M was expected. The correction is no surprise as orders rose significantly in each of the previous three months, but a more moderate decline was expected. The details show that weakness was based in foreign orders (-7.4% M/M), especially from non-EMU countries (-10.2% M/M), but also orders from euro area member states dropped (by 3.3% M/M) in July. Domestic orders, on the contrary, rebounded by 3.6% M/M after a 10.1% M/M decline. The sector breakdown indicates that orders for capital goods fell by 7.0% M/M, while orders for intermediate (2.9% M/M) and consumer (4.5% M/M) goods rose in July.