This morning the centre of economic news is the Euro area and we can also look at it in relation to the news from the ECB yesterday. Let is start with economic output in its second largest economy which is La Belle France.
In Q3 2022, gross domestic product (GDP) slowed after the rebound recorded in the previous quarter (+0.2% in volume*, after +0.5%). ( Insee)
Overall that is a positive result as whilst it shows a slowing I think that at the moment any growth is welcome in the present circumstances. We do see the impact of higher energy costs in the trade section and the emphasis is mine.
Conversely, foreign trade contributed negatively to GDP growth (-0.5 points), after a nil contribution in the previous quarter: imports were more sustained than in the second quarter (+2.2% after +1 .2%), particularly for goods (+1.9% after +0.8%) while exports continued to slow (+0.7% after +1.3%) under the effect of the drop in exports of services (-0.4% after +3.3%).
We get a little more detail later which also suggests some good news for the UK as we have been exporting electricity to France, But as we stand we do not have growth which relies on some heroic numbers for investment.
Total GFCF accelerated markedly this quarter (+1.3% after +0.4%). This development is mainly driven by the strength of GFCF in manufactured products (+3.5% after +0.4%), particularly in transport equipment (+12.4% after +0.3%). In addition, GFCF in services accelerated slightly this quarter (+0.7% after +0.4%) due in particular to the dynamism of GFCF in information-communication (+3.0% after +2.5%
So there you have it, apparently there is a surge in investment in the transport sector. If you add in some inventories then we have growth.
Changes in inventories made a positive contribution to GDP growth this quarter: +0.2 points, after +0.3 points in the previous quarter.
I can at least believe that inventories are rising at a time like this so let us accept the French figure for now as there is a much bigger issue today and here it is.
WIESBADEN – The gross domestic product (GDP) increased by 0.3% in the third quarter of 2022 compared to the second quarter of 2022 – adjusted for price, seasonal and calendar effects.
Hang on GDP in Germany grew? That does not seem right and it does not get much better when we see the explanation. We get less detail than we do for France but we are told this.
Economic output in the third quarter of 2022 was mainly driven by private consumer spending.
I do not often call out official figures but that seems wrong to me. At a time of high inflation I rather suspect they have their inflation measure (deflator) wrong and have recorded inflation as growth. The official explanation is that car registrations rose by 13% on the quarter but I would have expected contractions elsewhere. We may see a version of 2018 where at a much later date Germany revised its figures much lower.
Inflation! Inflation Inflation!
We do not get the national German figure until later but here is its largest province.
Düsseldorf (IT.NRW). The consumer price index for North Rhine-Westphalia rose by 11.0 percent from October 2021 to October 2022 (base year 2015 = 100); this is the highest inflation rate in North Rhine-Westphalia since the early 1950s. As reported by Information and Technology North Rhine-Westphalia as the State Statistical Office, the price index rose by 1.2 percent compared to the previous month (September 2022).
There are some interesting nuances in the detail as I note a search for other forms of energy and heating.
firewood, wood pellets and the like became more expensive here. by 114.8 percent
If we switch to the monthly figures it was a rough month for tomato fans.
tomatoes (+40.8 percent)
But returning to my critique of the GDP numbers and I know these numbers are outside the quarter in question. But in an overall inflationary surge which is particularly effecting Germany I have my doubts about recording GDP growth.
Returning to the inflation issue, the rise was in spite of official efforts to reduce it.#
The care reform from the beginning of 2022 also had a price-dampening effect on inpatient care for those with statutory health insurance (−8.4 percent).The State Statistical Office points out that the reduction in sales tax from 19 to seven percent for gas and district heating was taken into account when recording prices.
Oh Italy!
From the Italian statistical office.
According to preliminary estimates, the harmonized index of consumer prices (HICP) increases by 4.0% on a monthly basis and by 12.8% on an annual basis (from + 9.4% in the previous month).
Yes that is inflation of 4% in a single month which is double the annual ECB inflation target. We do not get a breakdown for this but we get a guide from the national series which tells us that the sector including energy rose by 34.9% in October. transport by 9.6% and food by 8.9%.
It has as we see so often caught expectations out as we mull how they managed to miss ( if my limited Italian is doing me a service) a 66.2% rise in regulated energy costs?
La Stampa adds this to the analysis.
The numbers mean an upcoming winter that looks difficult for families. The National Consumers Union defines today’s numbers as «a Caporetto» and adds «Inflation was already bleeding the Italians, but now the situation has become truly dramatic! For too long, families had been drawing on their savings to be able to pay for their shopping, electricity and gas bills, and by now the piggy banks are empty ”.
France
A much lower number but another rise.
Year on year, the harmonized consumer price index should increase by 7.1%, after +6.2% in September. Over one month, it should rebound by 1.3%, after -0.5% the previous month.
The relatively lower number gives me more confidence in today’s reported GDP growth.
Comment
It is not often I express formal doubts about official statistics but today’s GDP growth from Germany seems a little too good to be true. Let’s be polite as say there may be a ghost in the machine. Once we move on from that we see that the issue today is one of inflation in Germany, France and especially Italy. This allows us to look back on the ECB yesterday who let it be thought that it was winding back its expected response to inflation.
For example it was leaked via “sauces” that 3 policymakers had voted for 0.5% this time leading to more expectations of that being the next rise. It was summarised here.
Even though ECB guided to further rate hikes, market interpretation of the meeting was dovish as terminal rate moved ~ 25bps lower The reference to “next several meetings” was dropped , while “substantial progress has been made to withdrawing monetary accommodation” ( @CNBCjou)
They will have been guided towards today’s numbers so things now look very confused because with Germany still growing and inflation surging again why were they hinting at lower interest-rate rises? Perhaps they do not believe the growth story either.
Switching to wages we learned recently from ECB Chief Economist Lane that wages matching inflation is not a goof idea.
But trying to insulate workers entirely from inflation through higher wages would drive up corporate costs significantly and lead to second-round effects. ( derstandard)
But apparently it is for some.
Inflation in Belgium and Brussels is automatically included in the salary. And clearly.
The wage rise that EU Commission President Ursula von der Leyen grants herself and her civil servants is almost 7 percent. ( weltwoche )