Leeway will be limited, considering the high borrowing requirement in 2016.
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Intesa Sanpaolo – Research Department For professional investors and advisers only
Euro area: advance estimate of 3Q GDP in line with expectations. Marginal reacceleration possible in 4Q.
In Portugal, appointed Prime Minister Coelho failed to pass the confidence vote. The President of the Republic will therefore be obliged to ask Socialist leader Costa to form a government. Costa has recently signed political alliances with two far-left parties, Bloco de Esquerda and Partido Comunista Português (PC), which will guarantee the coalition a parliamentary majority. The road laid out for the new government is rife with obstacles. The coalition pact envisages a freezing of the privatisation process, the adoption of a number of measures implying higher public spending, and rejection of any further austerity measures. On the other hand, despite the significant progress made on the fiscal front (the deficit has been cut to below 3%, and this year the debt ratio is expected to fall for the first time), next year Portugal will face substantial refinancing (around 20 billion euros), due by half to early repayment of IMF loans. This means that the new government will mandatorily need to avoid alienating investor confidence. By no coincidence, the hot candidate to become the new Finance Minister, Mario Centeno, promised in an interview that Portugal “will stay on the path of fiscal consolidation laid out by the previous government, while reducing cruising speed”; the Communist Party also confirmed that the agreements reached with the European authorities will be respected. The question is whether in drafting the Budget for 2016 the majority will remain compact, faced with the need to identify concrete measures through which to achieve this goal. Possibly, the dramatic events experienced by the government led by Syriza in Greece, and awareness that leeway is limited, will help the coalition stay united.
The balance of advance estimates of GDP growth in the euro area was broadly in line with our expectations. Euro area GDP grew by 0.3% q/q; the same change was recorded in France and Germany, whereas Italy stopped at 0.2% q/q and Holland at 0.1%. Spain is still posting faster growth rates (+0.8% q/q, as already announced in the past few days). Year-on-year growth in the euro area accelerated further, from 1.5 to 1.6% y/y, also improving in Germany (1.7%), France (1.2%), Italy (0.9%), and Spain (3.4%). However, the monthly trend has slowed gradually since the beginning of the year, and industrial output data for 3Q were disappointing. In 4Q, growth could rise back to 0.4% q/q, advancing at a slightly faster pace in Italy, France, and Germany. Sentiment surveys are still positively set, although in recent months have seemed less consistent than usual with real output.
For what concerns Italy, acquired growth in the opening three quarters of the year is limited to 0.6%. This means that a very robust change will be needed in the closing quarter of the year (0.8% q/q), for the year to end with the 0.9% rate forecast by the Italian government. Although upside revisions of the advance estimate are possible, our forecast of 0.8% for 2015 will also require a strong performance in 4Q (+0.4-0.5% q/q). Although sentiment has improved significantly, and domestic demand is on the rise, the pace of the recovery remains modest, penalised by a slowdown in global demand. On this latter front, the next few months will be important in understanding whether the disappointing trend of industrial output in Germany in 3Q was transitory or not, and at what level Chinese growth will stabilise.
Appendix
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