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Macro Watch

Italy faces budget deadline, US consumption accelerates as German GDP stalls

Home / Perspectives / Macro Watch: Italy faces budget deadline, US consumption accelerates as German GDP stalls

Silvia Dall’Angelo, Senior Economist
09 November 2018
Macro Economics


Italy’s deadline for submitting its revised budget to European Authorities falls, US retail sales should indicate accelerating consumption due to the nation’s strengthening labour market, and new rules on vehicle emissions interrupt German GDP growth.

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The US bond market will be closed due to Veterans Day holiday.

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Italy’s deadline to present a budget compliant with the European authorities falls. Following the European Commission’s (EC’s) unprecedented decision to reject the previous Italian budget due to its planned deficit of 2.4% of GDP in 2019, the nation has had three weeks to present a revised version of its fiscal plans. There have been conflicting signals: top government officials have remained defiant amid reports of ongoing negotiations and a possible weakening of some controversial aspects. Whatever the outcome, the EC will express its final judgment on 21 November, when it releases its  assessments of the draft budgets of all eurozone members. If there is no agreement on Italy’s fiscal plans, Brussels could open an excessive deficit procedure, which might lead to sanctions of up to 0.2% of the Italian GDP over time.

The latest UK labour market data will be released. Unemployment has stabilised at 4% in recent months, the lowest level since the 1970s, placing the focus on wage inflation, which rose to a post-2009 high of 3.1% in August. And Japan’s GDP figures will be announced: consensus expectations of a 0.3% quarter-on-quarter contraction in Q3, following a 0.7% quarter-on-quarter gain in Q2.  Beyond quarterly-on-quarter volatility, Japanese growth has slowed down significantly so far this year., 

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Surveys suggest that Chinese economic activity slowed down at the beginning of Q4, continuing a trend that emerged clearly in Q3. In particular, October manufacturing PMI surveys for the country declined to about 50, suggesting that growth in industrial production at best stabilised at 5.8% year-on-year. However, recent policy measures could be starting to help stabilise domestic demand – particularly fixed-asset investment growth, which likely edged up to 5.5% year-on-year for the month after its infrastructure component probably bottomed in September. Meanwhile, retail sales growth should have remained solid at about 9.2% year-on-year in October, and the recently announced tax cuts for households – worth up to 0.7% of GDP – should provide support going forward. In general, Chinese authorities seem willing to ease monetary and fiscal policy in order to help counteract the negative impact of US-driven trade measures.

German GDP is likely to have stalled in Q3, after posting 0.5% quarter-on-quarter in Q2, as new car-emission rules put the brakes on industrial production. However, the decline in eurozone GDP growth, reportedly 0.2% quarter-on-quarter in Q3, suggests that German GDP might have contracted slightly for the period, with most forecasters on Bloomberg expecting a rate of  -0.1% quarter-on-quarter. Meanwhile, eurozone industrial production and employment figures probably contracted marginally in Q3, also likely slowed by the car-emission rules, but a decline in external demand has also challenged the European manufacturing sector this year. Employment probably continued to grow in Q3, with the eurozone job count having increased by more than 9m since mid-2013.

UK consumer price inflation (CPI) was probably constant in October, with the headline figure expected to have continued overshooting the Bank of England’s 2% target due to oil prices. Core inflation should have remained steady at about 2%. Meanwhile, US headline CPI will have likely increased to 2.5% in October, up 0.2% from the previous month, in a temporary move driven by higher gasoline prices in October. Recent oil prices suggest that there will be a quick reversal in November. Excluding volatile components, core inflation is likely to remained at about 2.2%.

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US retail sales should have remained solid in October, as suggested by early reports on auto-sales. Consumption – the main component of US GDP – has accelerated since March, supported by the strengthening labour market and, to a lesser extent, the tax cuts implemented early this year.

The Mexican central bank meets and is expected to hike rates by 25bps to 8%. This move would be justified by the recent deterioration in the country’s inflation outlook. Indeed, the Mexican peso has depreciated by about 6% since mid-October, largely due to the decision to discontinue the construction of the New Mexico City International Airport.


The Asia-Pacific Economic Co-operation summit takes place on the weekend in Port Moresby, Papua New Guinea, with Chinese President Xi Jinping and US Vice-President Mike Pence confirmed to attend.


Chinese exports growth: marching on                                                                               Macro Watch 091118 chart - China exportsSource: China Customs, International Monetary Fund as at October 2018.

Growth in Chinese exports remained solid in October, accelerating to 15.6% year-on-year, from 14.4% in September. As a result, China’s trade surplus improved to $34bn in October, from $31bn in September. It is possible that exports have been front-loaded in anticipation of the increase in US tariffs due in January, but it’s more likely that the recent depreciation in the renminbi has underpinned this growth – for now.


The consequences of Angela Merkel's exit from German politics, how a Chinese recession could undermine the global economy, and the importance of intangible assets for European investors are among the interesting reads that you may have missed.

Germany's political woes spell trouble for Europe

Geopolitical consultancy Stratfor goes through the implications of Merkel’s announcement of her withdrawal from the German political scene amid a more fragmented and polarised political environment.

Read now >

The global impact of a Chinese recession

Professor Kenneth Rogoff at Harvard suggests that a Chinese recession would have far-reaching negative effects on global growth, as it could cause a significant tightening of global financial conditions in an environment dominated by high and increasing debt levels.

Read now >

Investment in intangible assets in the euro area

The latest bulletin from the European Central Bank assesses the characteristic of intangibles and the implications of their increasing importance for investment levels, measurement challenges and distribution of productivity.

Read now >

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Silvia Dall’Angelo Senior Economist

Silvia joined Hermes in October 2017. As an experienced global economist, she is responsible for providing macroeconomic analysis and commentary, non-standard macroeconomic modelling, and developing relationships with key central banks and monetary authorities. Silvia previously spent 10 years at Prologue Capital Ltd, latterly as a global economist responsible for the team’s macroeconomic view. She holds a Master of Science in Economic and Social Sciences, as well as a Bachelor in Economic and Social Sciences, from Bocconi University in Italy.

Read all articles by Silvia Dall’Angelo

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