Week ahead (10-14 February): Q4 GDP release crucial for ECB’s decision next month

WEEK IN REVIEW

The ECB has left rates on hold this week, despite weak inflation, as President Draghi sounded less inclined to engage in further easing. The ECB is hoping that the GDP release next week will confirm that the Euro area is growing, albeit at a slow pace. Q4 GDP will also be crucial for shaping the 2015 ECB staff forecasts for the Euro area, that were referred by Draghi as very important for ECB’s future decisions.

In Portugal, the unemployment rate fell to 15.3% of the labour force in Q4 after 15.6% in Q3. A year ago, the unemployment rate was 16.9%. Employment was up 0.2%qoq in Q4 and 0.7%yoy, mostly thanks to female employment , up 0.4%.qoq and 1.2%yoy. These numbers are positive but may reflect more a correction of the larger than expected rise in unemployment numbers earlier in 2013 than an improvement on the back of strengthening activity. For further details and comment on the unemployment release check here.

WEEK AHEAD

12 February:

  • Euro area December Industrial production: it will be closely watched as an early pointer to what GDP in Q4 (published on Friday) could be. After a strong rise in November, a stabilisation would be compatible with a small increase in GDP in Q4. However, should it fall significantly, it could jeopardize the incipient recovery.

14 February:

  • Euro area Q4 GDP, prelim. estimate: The 2013 annual GDP estimate for Germany was published by the Bundesbank a few weeks ago and was somewhat disappointing. On the other hand, high frequency data such as the PMIs and industrial production have been positive in the euro area. Consensus is for GDP growth of 0.1%-0.2% after 0.1% in Q3. These figures will be crucial for the ECB, as any disappointment may lead them to act further, either by cutting the deposit rate to a negative value (effectively forcing commercial banks to pay for parking liquidity with the ECB), by implementing new LTRO operations or buying assets.
  • Portugal’s Q4 GDP, prelim. estimate: High frequency indicators (such as consumer confidence indicators and industrial production) have evolved in a very positive way and the quarterly employment report for Q4 showed another rise. The data suggests that GDP should grow again in Q4 for the third consecutive quarter, after 0.2%qoq in Q3 and 1.1%qoq in Q2