Still with the economy, and eurozone industrial production rose more sharply than expected in November.
Output climbed by 1.5% month on month compared to forecasts of a 0.5% increase. Year on year it rose 3.2%, much better than the 1.6% expected.
The October figures were revised upwards, with a 0.1% rise month on month compared to an earlier reported fall of 0.1%. Dennis de Jong, managing director at UFX.com, said:
After stuttering throughout the summer, industrial production in the eurozone bounced back with a vengeance in November, which will give the ECB serious grounds for confidence at this early stage in 2017.
The outlook remains weighed down by continued political uncertainty, but the recovery in the region is gathering some real momentum. Unemployment is falling, business confidence is up and the weak euro is a real boost for exporters.
Although Mario Draghi and his ECB colleagues are still faced with some very real political threats, the economy is standing up well in the face of adversity.
The ECB is due to announce its latest monetary policy deliberations next Thursday.
Back with the industrial production figures and Howard Archer, economist at IHS Markit, was also positive but warned of an uncertain outlook:
Even allowing for the fact that industrial production has been highly erratic, November’s jump reinforces our belief that Eurozone GDP growth could well have reached 0.5% quarter-on-quarter in the fourth quarter of 2016. This would be up from 0.3% in both the third and second quarters.
It appears that the Eurozone manufacturing sector carried decent momentum into 2017, and they will be helped by the very competitive euro…
Looking ahead, a concern for Eurozone manufacturers will be that mounting uncertainty over the coming months (particularly political) could cause business and consumers to be cautious in their major spending decisions, thereby constraining demand for capital goods and big-ticket consumer durable goods
It is also very possible that purchasing power for Eurozone consumers’ will become less favourable as inflation picks up, thereby weighing down on demand for big-ticket consumer durables.
In particular, an uncertain political environment could be increasingly problematic for Eurozone growth prospects over the coming months, especially given that the UK’s Brexit vote last June and November’s election of Donald Trump as US President fuels concern over potential political shocks. General elections are due 2017 in the Netherlands (in March), France (in April/May) and Germany (in September), while a 2017 election is very possible in Italy following Prime Minister Renzi’s early-December defeat in the referendum on constitutional reform which has led to his resignation.
German economy grows at fastest rate in five years
Good news for the eurozone as the Germany economy, the major driver of growth in the region, recorded its best performance for five years in 2016.
German GDP grew by 1.9% last year, up from 1.7% in 2015 and better than the expected 1.8% rise. The economy was boosted by strong domestic demand, compensating for sluggish demand for exports. ING economist Carsten Brzeski said the German economy remained an “island of happiness”, adding:
The German economy has once again defied several deep hits. Despite the stock market crash in China, Brexit, Turkey, Trump and Italy, the economy performed its best growth year since 2011. Strong domestic demand has shielded the German economy against most external risks.
And he said the biggest risk to future growth was complacency:
[2016] was a year in which the German economy proved to be more robust than many thought and in which the economy weathered a series of external risks extremely well, thanks to strong domestic demand. In fact, the often controversially discussed refugee crisis and the ECB’s ultra-loose monetary policy turned out to be an economic blessing, artificially extending the long, positive cycle of the economy. The year 2017 will in our view look very much like 2016, only with a bit less of everything. Domestic demand, ie construction and both private and public consumption, should remain the main growth drivers. The biggest risk for the economy is not Trump or political populism in the Eurozone but self-complacency. The economy urgently needs new impetus from new structural reforms and stronger public and private investment. It is very unlikely that it will get any of these before the elections.
UniCredit economist Andreas Rees was also positive:
The German economy remains a stronghold of continuity. With plus 1.9% in 2016, its growth performance was rock solid and even accelerated to its strongest pace in the last five years (2015: +1.7%; 2014: +1.6%). Once again, the major driver was domestic demand in the form of private and public consumer expenditures and not export activity. Imports were even outpacing exports last year. Taking a glimpse into 2017, the German economy remains fundamentally in good shape. The growth drivers will change somewhat, since there will be a (moderate) shift from domestic demand to stronger export activity. What can go wrong? It goes without saying that there are substantial political risks, especially from the US, which could have an (indirect) impact on German exports. Whether and how this will play out still remains to be seen. For 2017, we expect “only” GDP growth of 1.5%. Please note that the reason for the drop is NOT based on fundamentals and definitely not a reason to be worried. Instead, the lower number of working days is artificially weighing on the headline growth number (calendar-day adjusted growth in 2017: +1.8% after also +1.8% last year).
48m ago10:21
Pharma shares hit by Trump comments
Speaking of Donald Trump, one market moving comment in his press conference related to pharmaceutical companies.
He said drugs companies were “getting away with murder” in the prices they charged and promised that would change. That sent US pharma stocks lower, and theat sentiment has carried over into Europe.
So Shire, Hikma, GlaxoSmithKline and AstraZeneca have all seen their shares fall. Michael Hewson, chief market analyst at CMC Markets, said:
If pharmaceutical companies were hoping for an easier ride from President elect Donald Trump than Hillary Clinton they were quickly disabused of this notion last night when the President elect let rip at the industry’s pricing policies.
Last year was notable for a number of stories related to price gouging including the Mylan story around the Epipen price hikes, and Valeant’s policy of buying older niche drugs and then hiking the prices aggressively, and the antipathy that resulted from these stories has made the industry an easy target for a President who may feel compelled to get some quick political wins.
At a time when pharmaceutical companies were hoping for a more benign investment environment last night’s remarks were a reminder, if any were needed, as well as a warning to the sector and other sectors as well, of the President elects propensity to adopt a scatter gun approach to domestic policy.
Investors would do well to bear this in mind given that the recent stock market rally doesn’t appear to have factored this into their investment scenarios. The Trump Presidency is unlikely to be a one way bet for stock markets.
Updated at 10.37am GMT
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