Industrial production: any hint at future developments?
► As I see it, the May industrial production data doesn’t reveal much, except that there is still a widespread and significant fall. True, the head-on index fell by a mere 0.1 percent year-on-year, but this isn’t informative as such. The weekdays-adjusted figure is 1.3 percent down whereas the seasonally- and weekdays-adjusted number showcases a 1.3 percent rise month-on-month.
► More important is the sources of contribution to the IP index. Other non-metallic minerals (-17 percent) – that reflects weak construction activity, motor vehicles (-10 percent) , machinery & equipment (-9 percent) and suchlike are all down.
► Now there is ordinarily a strong correlation between the IP and the GDP, but this doesn’t automatically imply they will have the same sign. Still, since neither loans nor public spending will help in Q3, but because there is a mild positive base effect, I tend to think a couple of months more weak IP prints would imply negative or very low growth in Q3. That is, they will have the same sign this time around.
► In Q2, we are likely to see negative GDP growth, but a milder contraction compared to -2.6 percent of Q1.
► Pen in near zero growth anyway, as I have also penned in near zero growth for H2 2019. That means near zero growth for almost a year, possibly a slightly above zero GDP print for 2019 in toto due to base effects in Q4.
► This is so because car sales, house sales, loans, PMI, confidence indices all point in the same direction; a marked downturn in real activity is still going on. The relative stabilization of the lira, which I believe will last for a short while, is only a sine qua non for a restart, or a precondition for buying some time before a tangible program is put forward, not a condition ensuring growth will be back shortly.
► As long as the corporate short position-to-GDP/weak (even negative) loan growth mix will be as it is today, the stagnation will persist.
► Actually, I would expect the IP to come back before housing, energy, car sales, durable sales strengthen. Because I expect a much stronger contribution from net exports going forward. That is reflected onto the IP data in May. Export-driven sectors fared better. But still no sign of domestic demand recovery.