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BofAML _ informe semanal economía Europa

Redacción - Lunes, 19 de Junio

Europe Economic Weekly: The cycle and the noise • We are now tracking 0.5% qoq Q2 Euro area growth (-10bp). Signals are mixed, manufacturing sentiment may be close to peak. • Recent inventory build-up could reflect a mix of optimism, input cost smoothing, data noise - and risks of upcoming unwind.
•   We would not read too much into the surprisingly hawkish BoE. The data will speak: growth is slowing, wages weak and falling.

Euro area growth signals feed into our cautious views

Our Euro area GDP tracker for 2Q has slipped back to 0.5% qoq from previously 0.6%. This is still a bit higher than our forecast (0.4%), but feeds into our cautious view on growth as we head into H2.

Inventory cycle may have peaked

We look at the Euro area inventory cycle. Inventories positively contributed to growth for 3 consecutive quarters now, adding to domestic demand. This can have several reasons, but we highlight some, which would not be extremely positive for demand prospects: 1) Firms became optimistic and got ready for better demand - recent data may challenge this 2) Firms smoothed costs in anticipation of higher input (energy) prices  - there is a strong relationship between lagged input prices and inputs inventories. 3) Inventories may just be noise and external demand may have been weaker than current estimates suggest: large contributions of inventories in the first GDP estimate tend to be followed by downward revisions to growth at a later stage.

And sentiment may be close to peak

Can external growth replace potentially softer domestic demand? We are sceptical. Chinese imports from Germany are already falling. Cross correlation tests or Granger causalities show that the global, US and China PMIs tend to lead the Euro area one by 3-4 months. Manufacturing sentiment in the Euro area could be very close to, if not past, its peak. Softer data and downward risks to inflation forecasts from recent oil price developments would suggest that ECB communication could become quite complicated in the second half of this year.

A hawkish BoE vote meets dovish data

We would not read too much into the surprisingly hawkish 5-3 Bank of England vote to keep rates on hold. The key, always, is what happens to the economy. Our trackers are well below BoE growth forecasts and wage growth is softer too. We expect that to keep the BoE on hold though clearly the chances of a hike have increased with today's news. A hike in this environment would, we think, have more negative effect on growth than usual. It would be piling a tightening in monetary policy onto real income and uncertainty shocks.