- Retail sales and services lift UK GDP growth to fastest in nearly a year, while production falls back
- Turkish economy slows in Q2; interest rate hike expected on Thursday
Muhammet Mercan, Turkey economist at ING, said:
Strong growth in the first half of this year is attributable to fiscal measures introduced by the government to support private consumption and investment, with increasing capital spending.
Given that increased financial volatility is weighing on sentiment, the likely difficulties in external financing, an ongoing uptrend in inflation and already sharp monetary tightening since early 2018 with likely further steps, a strong underperformance in growth could well be seen in the second half, likely turning to negative on a sequential basis.
Back to the Turkish economy, whose growth slowed to a 5.2% annualised rate in the second quarter, from 7.4%.
The breakdown shows the agricultural sector shrank 1.5% year-on-year, while industry grew 4.3%, construction expanded 0.8% services powered 8% ahead. The Turkish economy is expected to grow 3.3% this year, according to a Reuters poll, below a 5.5% government target.
The Turkish economy is widely expected to lose even more momentum in the coming quarters as a result of significant lira depreciation.
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PricewaterhouseCoopers have sent us their thoughts on UK GDP.
John Hawksworth, chief economist at PwC, says:
The UK economy continued to pick up momentum, growing by 0.6% in the three months to July. This was the fastest quarterly growth rate since the fourth quarter of 2016 and supports the decision of the Bank of England to raise interest rates in August.
The hot summer and the World Cup boosted retail spending in June and July, and latest business surveys suggest that positive services sector growth continued in August. But manufacturing output growth has weakened.
Looking ahead, however, the long hot summer could give way to a stormy autumn as Brexit-related uncertainty leads businesses to defer major investment decisions and subdued real wage growth weighs on consumer spending.
Britain’s trade position also improved in July. The overall trade in goods deficit was the smallest since February, at £9.97bn, according to the ONS.
The gap with the EU narrowed to £7.2bn, the lowest since April 2016, while the deficit with the rest of the world shrank to £2.8bn, the smallest since February. Exports rose 2% in July while imports fell 1%.
Michael Thirkettle, chief executive of construction consulting and design agency McBains, said the bounceback in construction, which was hit hard by the “Beast from the East” during the winter, represented a much-needed boost to confidence in the sector. But he cautioned:
Underlying growth remains fragile however, and the real test will be if this can be sustained in the months to come, given the uncertainty over issues like Brexit that have impacted on UK companies’ commitment to new projects over the last two years.
In particular, separate figures published by the ONS recently show the lowest level of net migration from the EU since 2012, which has again raised concerns as to how construction will cope with a reduction of a skilled labour supply from the EU post-Brexit. If sustained growth is to be realised, then the industry will need the workforce with the right skills, but this is far from clear at present.
Lee Hopley, chief economist at EEF, the manufacturers’ organisation, says:
While not quite in rude health, the economy does look to have been on the up over the summer with consumers spurred on by some good weather and modest increases in real wages. Export demand also looks to have been a bit more supportive, consistent with some of the survey evidence over the summer. It is still unclear that there is enough momentum here to counteract what feels like a rising tide of uncertainty about Brexit and global trade policy concerns.”
#ONS data show UK economy growing 0.6% in three months to July, an improvement that was broadly in line with PMI, which points to slight moderation in growth going forward, but still solid expansion so boding well for Q3 #GDP to at least match the 0.4% increase seen in Q2 pic.twitter.com/GlBxdJzVdW
UK 3m/3m GDP growth at 0.6% vs 0.5% expected. Driven by decent services growth. As expected domestic UK economy continues to recover from Brexit inflation shock. Still a drag from uncertainty but likely some decent Brexit news ahead. Markets have been overdoing the gloom
Construction output rose 0.5% in July, the biggest rise since last December, while manufacturing fell 0.2%, worse than expected. This was largely due to a decline in pharmaceuticals, which can be volatile, the ONS cautioned. Overall production, which also includes utilities, mining and quarrying, edged up 0.1%.
The statistics office’s head of GDP Rob Kent-Smith said:
Growth in the economy picked up in the three months to July. Services grew particularly strongly, with retail sales performing well, boosted by warm weather and the World Cup. The construction sector also bounced back after a weak start to the year.
However, production fell back, with manufacturing again slipping a little while energy generation and supply fell due to reduced demand.
The dominant service sector again led economic growth in the month of July with engineers, accountants and lawyers all enjoying a busy period, backed up by growth in construction, which hit another record high level.
The biggest contributor to growth was the services sector, which expanded 0.6% in the three months to July, while retail trade grew by 2.1%.
The Office for National Statistics highlighted the good weather between May and July, citing Met Office data that this summer was the joint hottest summer in the UK since records began.
The UK figures are out. Britain’s economy grew 0.6% in the three months to July, the fastest pace in almost a year and up from 0.4% in the three months to June. It was boosted by the World Cup and the heatwave, which encouraged many people to go out and spend more at pubs and restaurants.
In July alone, GDP rose 0.3% compared with June.
China’s foreign ministry has reiterated that Beijing will respond if the US announces new tariffs on Chinese goods. On Friday, Donald Trump said he was ready to impose duties on pretty much all Chinese imports into the US.
China’s foreign ministry spokesman Geng Shuang told a regular briefing:
If the US said obstinately clings to its course and takes any new tariff measures against China, then the Chinese side will inevitably take countermeasures to resolutely protect our legitimate rights.
Neil Wilson, chief market analyst at Markets.com, has sent us his thoughts on Debenhams:
A CVA is being talked about, but given the weakness in the share price and the recent acquisition of House of Fraser, we must consider the possibility that Mike Ashley’s Sports Direct – which has a near 30% stake in Debenhams – will swoop.
The rationale for combining the two to create the House of Debenhams is compelling enough. As previously noted, combining the two businesses, reducing overheads and at a stroke removing a key leg of competition, seems like the only viable solution for the two ailing department stores. The fact is the market is screaming for restructuring and consolidation looks a sensible route to take given the well documented structural pressures on the sector.
Primark, owned by Associated British Foods, expects to post a 6% rise in sales in the year to 15 September, helped by favourable exchange rates and new store openings. But sales melted away during the summer heatwave in northern Europe, with like-for-like sales down 2%.
In the UK, full-year sales are also expected to be 6% ahead while like-for-like growth is set to be 1.5%. Primark said it had ramped up its share of the clothing market.
Primark is slightly more subdued than the last update in early July, with overall LFL sales 2% down, but ABF call out the outperformance of the core UK operation.
Primark was held back by sales in “Northern Europe”, but the operating profit margin recovered well in the second half. In terms of new store expansion, the much-vaunted US operation continues to edge forward (with 9 stores now open), but the highlight is that the new UK site in the old Birmingham Pavilions centre will, at 160,000 sq ft, become the largest store in the whole Primark estate.
Aston Martin, the luxury car brand favoured by James Bond, has strengthened its board with several experienced FTSE executives ahead of its planned stock market flotation.
Its board will be chaired by former Royal Bank of Scotland director Penny Hughes. Richard Solomons, who ran InterContinental Hotels until last year, will serve as a senior independent director and chair the audit and risk committee.
Turning to company news, Debenhams shares have plunged 17% this morning, to 10p.
The department store chain called in administrators KPMG over the weekend to assess its options, including a company voluntary arrangement. This – also used by other retailers recently – would allow it to close stores and to renegotiate rents at others.
The Turkish economy is expected to slow further in the second half, as the country battles with the fallout from its currency crisis. The lira has plummeted, partly due to concerns over president Recep Tayyip Erdoğan’s influence over monetary policy.
Economists say the central bank should raise interest rates to rein in inflation, but Erdoğan has resisted this. The central bank meets on Thursday.
The Turkish GDP figures are out. The economy grew at an annualised rate of 5.2% in the second quarter, down from 7.4% in the first quarter, but in line with economists’ expectations.
*TURKEY SEASONALLY ADJUSTED GDP EXPANDED 0.9% Q/Q IN 2Q
*TURKISH ECONOMY EXPANDED 5.2% IN 2Q ON YEAR
The dollar is rising again amid mounting trade tensions, and the Swedish krona is also up following yesterday’s election.
The dollar index, which measures the US currency against a basket of six currencies, is 0.13% higher.
Sweden faces a protracted period of political uncertainty after an election that left the two main parliamentary blocs tied but well short of a majority, and the far-right Sweden Democrats promising to wield “real influence” in parliament despite making more modest gains than many had predicted.
The populist, anti-immigrant party won 17.6% of the vote, according to preliminary official results – well up on the 12.9% it scored in 2014, but far below the 25%-plus some polls had predicted earlier in the summer. It looked highly likely, however, to play a significant role as kingmaker.
European stock markets have opened slightly lower.
David Madden, market analyst at CMC Markets UK, says in his morning note:
The trade numbers from Beijing are likely to have struck a nerve with Mr Trump, and given that he thinks the US are winning the trade spat on account of the recent weakness in the Chinese stock market, he is likely to stick to his protectionist line. Beijing said they would retaliate should the US impose fresh tariffs, and traders are fearful they might weaken the yuan or target US firms operating in China.
Tim Cook, the CEO of Apple, warned President Trump that if he continues down the route of protectionism, it could hurt the company’s profits. The tech sector has been the standout performer of the US market this year, but it has come under pressure recently on account of the update last week from Washington DC that tighter regulation would be required for the industry, and in particular social media stocks like Facebook and Twitter.
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Tensions between the world’s two biggest economies over trade have deepened further, after China revealed a record trade surplus with the US on Saturday. Customs data showed it jumped to $31.05bn in August from $28.09bn in July, while overall export growth slowed to the slowest pace since March.
The overall sense is that the United States will continue to escalate the pressure until China submits to US demands which does not seem likely any time soon. Overall, the impact of tariffs and high levels of uncertainty will both continue to weigh on markets into the end of the year.