Graphic content – January; Explaining Eurozone weakness
29th January 2019
January’s chart of the month comes from Credit Suisse. We’ve written before back in October 2017 about how a strong Chinese economy was supporting Eurozone growth through international trade. The chart below demonstrates how the strong growth in exports to Asia (primarily China) was a large contributor to total export growth in 2017. This export growth coincided with an uptick in Eurozone PMIs and a period of strong Euro Area growth.
In 2018, Eurozone economic surprises turned negative. We had been tracking Chinese imports from the Euro Area, which had been signalling a slowdown in Euro Area growth. China underwent a dramatic slowdown as we entered 2018 and while there has been some degree of Chinese stimulus in previous quarters, this hasn’t managed to boost Chinese imports from the Euro Area. Continued strong house price growth in the Chinese economy suggests stimulus is supporting asset prices, but further stimulus will be needed in other channels to expand Chinese imports.
What is also interesting is the fall in imports from other areas of the global economy over the last year. The slowdown in the ‘Rest of EU’ data, predominantly Eastern European countries and the UK, has coincided with the China slowdown. The crisis which hit Turkey over the summer also appears to have caused a slowdown in Eurozone exports, with negative growth in Turkish imports contributing to about half the slowdown in the latter half of 2018.
One saving grace for the Eurozone has been the strong US economy, which has contributed to a growing contribution to Eurozone export growth. However a peaked US economy, with fading fiscal effects and the lagged effects of tighter monetary policy, looks less supportive going forward. Moreover we expect the twin US deficits to contribute to a weaker dollar, something which would hurt US imports from the Euro Area.