MUFG: Europe Weekly - FJElite

Macro focus - Still looking for a recovery in German industry:

Recent German industrial data continue to paint a picture of a fragile stabilisation rather than a meaningful rebound. Manufacturing surveys have improved, with both the PMI and Ifo indicators signalling firmer activity ahead, while fiscal support should start to provide more of a tailwind over coming quarters. But a range of risks continue to weigh on sentiment and activity. Low EU gas inventories are increasingly a concern with a durable US-lran deal still proving elusive. Meanwhile, record-low Rhine water levels are disrupting industrial operations domestically. Disruption to inland waterway freight alone could shave around 0.2pp off Q3 GDP growth. Looking further ahead, Germany's fiscal shift and structural reform efforts will be supportive, but the loss of cheap energy, weaker external demand dynamics and persistent supply-side constraints mean that any recovery is likely to be steady rather than spectacular. We see overall GDP growth at 0.8% this year.

What we’re watching next week: It is another light week of European data releases with UK Q2 GDP being the highlight. We have pencilled in a slightly above-consensus figure of 0.5% Q/Q. This would certainly be a good outcome in the context of the US-lran shock and domestic political uncertainty, but we expect a familiar story of UK growth momentum tailing off in H2 amid fiscal uncertainty and rising inflation.