The Eurozone profit slump " Top-down profit growth collapses "
the rise in unit labour costs has jumped higher in the Eurozone, which has resulted in a sharp drop in corporate profitability from a macro-economic , or top-down perspective
the labour matket deteriorated, however employment fell much more modestly than GDP, as changes to the labour market tend to follow changes in economic activity with a lag of a couple of quarters
Moreover, due to the unique reasons behind the collapse in economic activity - lockdowns - companies hung on to more employees than they would normally do during a sharp economic downturn, while the governments subsidized temporary employment schemes aslo encouraged them to keep employees on the payroll
looking forward, we expect growth in unit labour costs to explode in Q2, as GDP growth is expected to drop around - 15% yoy
Although the gradual reopening of the economy , as from early May onwards should push ip labour costs growth lower in 2020H2 , we think a drop in corporate profitability during the 1st half of 2020 will weigh on fixed investments for a number of quarter to come.
CHINA
May data shows impressive comeback of car sector, while external headwinds are rising
Car production is improving at an impressive pace, showing positive annual growth of 11.3% yoy in May
Car sales is also back to growth territory +7% yoy for May
the car sector is supported by government measures
overall industrial production growth rose 4.4% yoy in May , this trend is now flattening out a bit , as it reflects rising extrenal headwinds from the sharp drop in global activity that caused Chinese exports to contract by 3.3% yoy in May