German Industrial Production (October)

The rebound in auto output in October means that aggregate industrial production may increase in the fourth quarter. But with the services sector being hit hard by new Covid restrictions, it seems likely that the German economy will barely grow at all in Q4.
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

Omicron adds to downside risks

High frequency data show that travel to retail and recreation destinations, restaurant bookings and flights have all declined in the past few weeks as coronavirus restrictions have been tightened in the face of rising hospitalisations. It now looks likely that GDP growth will be lower than our forecast of 0.7% q/q in Q4. The Omicron variant has added to these downside risks although at this stage its transmissibility, severity and capacity to escape vaccines are unknown. Meanwhile, we think euro-zone inflation has probably peaked at nearly 5% in November. If restrictions are tightened sharply, energy inflation may fall more than we have assumed, pulling headline inflation down a bit further and faster than we are assuming. But core inflation – which matters more to central bankers – could end up higher than anticipated if supply problems last for longer. Either way, it now seems likely that the ECB will maintain some capacity to keep bond purchases high and flexible beyond next March.

6 December 2021

European Economics Update

Omicron: implications for the euro-zone

It is still very early days in assessing the effects of the latest Covid variant, but we suspect that Omicron has the capacity to cause a new decline in economic activity in the coming months but that it will probably have a relatively small impact on inflation. Meanwhile, the variant means the ECB is even more likely to maintain some flexibility around its asset purchases beyond next March.

29 November 2021

European Data Response

Germany Flash Inflation (Nov.)

The increase in German inflation to 6% on the HICP measure was partly due to statistical quirks which should be reversed next month. But even the national CPI measure of inflation rose to 5.2%. However it is measured, inflation has now probably peaked and should fall back a long way next year.

29 November 2021
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