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27Feb09: German – euro area economy
GDP slump in 4Q08 followed by abating recession, U-shaped recovery starting in 4Q09
The slump in German GDP by 2.1% q/q non-annualised exceeded market (and our) expectations by almost 50%. Exactly the same applies to the corresponding GDP figure for the euro area of -1.5%.
Since production cuts extend into the new year, another decline by 2 % in 1Q09 can be expected, before a possible small bounce in 2Q, driven by fiscal stimuli.
From 4Q09 a gradual recovery is likely to set in with a slow build of momentum, as fiscal and monetary stimuli gain traction. Growth is likely to remain below potential for most of 2010.
Asset conclusions: given the scale of the downward momentum in the euro area, stocks even at current subdued prices may offer little short term value, whereas government bond prices might still have some way to go up. The euro should weaken in the near term.