German Industrial Production (June)

The further decline in German industrial output in June, to 6.8% below its pre-pandemic level, underlines that the problems in the auto sector will hold back an otherwise strong economic recovery. It is now uncertain whether GDP will regain its pre-pandemic level by Q4 this year, as is widely expected.
Andrew Kenningham Chief Europe Economist
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European Economics Update

Rising house prices strengthen ECB hawks’ case

Euro-zone inflation would be even further above target if owner-occupied housing costs were included in the region’s headline measure. Their formal inclusion won’t take place for a few years yet, but the ECB has pledged to take them into account in the meantime. On balance, this points to slightly tighter policy. Euro-zone Drop-In: Why the ECB will be laying the groundwork for rate hikes in 2023. Join Andrew Kenningham and the Europe team for a discussion about their Q1 euro-zone Economic Outlook report on Tuesday, 1 Feb at 09:00 EST/14:00 GMT. Registration here.

25 January 2022

European Data Response

German Ifo Survey (January)

The increase in the Ifo Business Climate Index (BCI) in January provides more evidence that, after contracting in late 2021, conditions have stabilised at the start of the year. With disruption from the Omicron wave likely to ease in the coming weeks, we think German GDP will increase in Q1. Euro-zone Drop-In: Why the ECB will be laying the groundwork for rate hikes in 2023. Join Andrew Kenningham and the Europe team for a discussion about their Q1 euro-zone Economic Outlook report on Tuesday, 1 Feb at 09:00 EST/14:00 GMT. Registration here.

25 January 2022

European Data Response

Euro-zone Flash PMIs (Jan.)

The small decline in the Composite PMI in January confirms that Omicron has taken a toll on the services sector, though Germany performed surprisingly well. We think governments will ease restrictions sufficiently in February and March to allow euro-zone GDP to increase by around 0.5% in Q1.

24 January 2022

More from Andrew Kenningham

European Chart Book

Strong recovery to continue in Q3

The surge in spending as coronavirus restrictions have been lifted will bring the euro-zone economy close to its pre-pandemic level in the coming months. After expanding by 2% q/q in Q2, we expect a similar increase in Q3. Both business and consumer sentiment are strong and order books are full. High frequency mobility data also suggest that things are getting back to normal. The main exception is the tourist sector; although there has been a big increase in flight numbers in the past few weeks, it is still running well below normal levels. Meanwhile, inflation rose above 2% in July and there is mounting price pressure in supply chains, while producer price inflation reached double-digit levels and points to HICP inflation rising further in the coming months. That said, we are confident that inflation will drop back again next year to below the ECB’s 2% target.

4 August 2021

European Data Response

Euro-zone Final PMIs (July) and Retail Sales (June)

The final PMIs show that the euro-zone’s recovery continued apace at the start of Q3. Price pressures are continuing to mount and point to an increase in inflation in the coming months, but we expect this to be temporary. Meanwhile, retail sales increased again in June, to nearly 5% above pre-pandemic levels.  

4 August 2021

European Economics Weekly

Reopening effects to persist in Q3

The surge in German inflation, to 3.8% on the national CPI measure in July, may have got some pulses racing in Frankfurt, but core euro-zone inflation remains very low and we continue to think that the ECB will struggle with excessively low inflation over the medium term. Next week we expect to learn that euro-zone retail sales rose again in June and the Composite PMIs for Spain and Italy increased in July.
 

30 July 2021
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