Euro area growth is set to surprise on the upside this year
Risk assets set to be underpinned by robust global growth in H1
German yields are lower on demand for long duration
Crude Oil prices have bottomed
China joins the easing wave
Following a slowdown in 2014, there is more evidence gathering that the German economy is really gaining momentum. Surveys across the board, such as ifo, PMI, ZEW and consumer confidence, are moving higher and this week factory orders for December showed a sharp increase, putting the trend on the steepest path in three years. Foreign orders in particular were very strong, signalling that the significant depreciation of the euro and decent growth in export markets such as the US and UK are underpinning exports. German export orders to other eurozone countries were also strong, suggesting that the strong recovery in, for example, Spain is also having a positive impact on Germany. Spain grew 2.7% q/q annualised in Q4, the strongest growth since 2008.
German consumers are also reaching for their pockets and retail sales are rising at the fastest pace since 2010. The improvement in this sector was confirmed this week by a significant upward revision in the final service PMI for December from 52.7 to 54.0. The stronger growth picture is also seen in data for the whole euro area. This week, euro retail sales revealed a further increase in December leading to the strongest three-month increase since 2004.
For some time we have had an above-consensus estimate of euro growth of 1.5% in 2015 versus consensus of 1.1%. However, for the first time in a long time, we now start to see upward revisions to euro area growth. In its winter forecasts, for example, the EU Commission this week revised its estimate for euro growth this year up to 1.3%, from 1.1%. As we have highlighted for a while, the euro recovery is supported by (a) a sharp weakening of the euro, (b) the big decline in oil prices, (c) reduced risk perception of the Ukraine crisis, (d) easier credit conditions and (e) decent growth in export markets.
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