Economic Highlights

Final GDP for Q2 came in at -19.8% q/q, a small upgrade from the initial -20.4%, and, unsurprisingly, still the worst outcome since current records began in 1955. But much of that occurred in April and the bounce back has continued, albeit less strongly than initially. Some evidence if that was apparent in the latest Services PMI, which rose from 55.7 to 56.5. Investec Economics sees a 9% y/y fall in GDP in 2020, followed by a 6.4% recovery in 2021.

The monthly Payroll data for September was somewhat disappointing, with jobs growth of 661k vs an expected figure of 859k and 1.489m in August. Leisure, Hospitality and Retail led the way as these areas of the economy continued to recover. The Unemployment rate looked healthier, falling from 8.4% to 7.9% (f/c 8.2%), but only because the Participation Rate fell from 61.7% to 61.4% (f/c 61.9%) as some workers stopped looking for jobs. This was the last major employment report before the election, so not great for the President.

The Euro zone remains mired in deflation, with headline CPI running at -0.3% y/y (from -0.2%) in September. Even the core rate, allowing for Covid-related price dislocation, is a lowly +0.2% (from +0.4%). It seems inevitable that the ECB will have to touch the accelerator again if these conditions persist.

Both the Manufacturing (51.5 vs 51.0) and Services (55.9 vs 55.2) PMIs continue to point to a growing economy. Given that the Communist Party marks its centenary in 2021, leaders will be determined to keep the plates spinning during the celebrations.