Louise Curley

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      Fourth Quarter data on Gross Domestic Product
      for many Eastern European countries are beginning to appear.
      For the most part, these economies peaked in 2008 and after declining in
      2009 and 2010 began to recover in the first half of 2011 only to be beset
      with the problems in the euro area. The attached chart shows the
      course of the current value of these economies in US dollars for five of
      the Eastern European countries that have released GDP data for the full
      year 2011. Slovenia and Bulgaria are the smallest economies in the
      group, both amounting to roughly $50 billion in 2011. The Slovakian
      economy amounted to almost $100 billion, the Romanian, almost $200 billion
      and Poland, over $500 billion. All five economies declined in the
      fourth quarter. </p>
      <p>The recovery from the recession of 2008 among these
      countries has been uneven. Romanian GDP in 2011 was still 11.5
      percentage points below its value in 2008, Slovenia was 9.5 points and
      Poland 3.8 points below their respective peaks. Bulgaria was 3.7 points
      above its 2008 value and Slovakia 1.7 points above its 2008
      peak.</p>

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<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
  <th scope="col" >GDP In Billions of USD</th>
  <th scope="col">Q4<br>11</th>
  <th scope="col">Q3<br>11</th>
  <th scope="col">Q2<br>11</th>
  <th scope="col">Q1<br>11</th>
  <th scope="col">2011</th>
  <th scope="col">2010</th>
  <th scope="col">2009</th>
  <th scope="col">2008</th>
  <th scope="col">2011/<br>2008</th>
 </tr>
 </thead>
 <tbody>
 <tr>
  <td class="firstcol" >Slovenia</td>
  <td>12.0</td>
  <td>12.6</td>
  <td>12.8</td>
  <td>12.0</td>
  <td>49.6</td>
  <td>46.7</td>
  <td>49.0</td>
  <td>54.8</td>
  <td>90.5%</td>

 </tr>
 <tr class="odd">
  <td class="firstcol">Slovakia</td>
  <td>23.6</td>
  <td>24.6</td>
  <td>24.9</td>
  <td>23.1</td>
  <td>96.1</td>
  <td>87.4</td>
  <td>87.6</td>
  <td>94.8</td>
  <td>101.7%</td>
 </tr>
 <tr>
  <td class="firstcol">Romania</td>
  <td>46.3</td>
  <td>48.3</td>
  <td>49.0</td>
  <td>44.6</td>
  <td>188.1</td>
  <td>162.6</td>
  <td>163.1</td>
  <td>202.6</td>
  <td>88.5%</td>
 </tr>
 <tr class="odd">
  <td class="firstcol">Poland</td>
  <td>128.3</td>
  <td>137.1</td>
  <td>130.3</td>
  <td>118.9</td>
  <td>514.9</td>
  <td>469.0</td>
  <td>433.1</td>
  <td>535.0</td>
  <td>96.2%</td>
 </tr>
 <tr>
  <td class="firstcol">Bulgaria</td>
  <td>12.2</td>
  <td>14.0</td>
  <td>14.2</td>
  <td>13.3</td>
  <td>53.7</td>
  <td>47.6</td>
  <td>48.2</td>
  <td>51.8</td>
  <td>103.7%</td>
 </tr>
</tbody></table>
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Fourth Quarter data on Gross Domestic Product for many Eastern European countries are beginning to appear. For the most part, these economies peaked in 2008 and after declining in 2009 and 2010 began to recover in the first half of [...]

Economic Recovery in Eastern Europe

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Tom Moeller

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**The PCE chain price index** rose 0.3% during January, the same as in December, after a 0.1% in November. The y/y rise eased to 2.5% from 2.6% in December. The price index excluding food & energy rose 0.3% last month after unrevised gains of 0.2% in December and 0.1% in November. The y/y change fell to 2.6% last month from 2.9% in December.

**Durable goods prices** rose 0.3% (-1.2% y/y) in January, after a 0.5% December decline. Motor vehicle & prices rose 0.9% (-0.1% y/y) following a 0.4% rise. Recreational product prices improved 0.7% (-1.8% y/y) last month, after falling in each of the prior five months, while home furnishings & appliance costs edged 0.1% higher (-2.5% y/y) after a 0.9% December decline.

**Prices of nondurable goods** strengthened 0.6% (1.6% y/y) last month after rising 0.4% in December. Gasoline & oil prices led the increase and jumped 2.0% last month (0.4% y/y) after a 3.7% rise in December. Clothing prices declined 1.2% (+1.1% y/y) after a 0.2% gain. The cost of food & beverages rose 0.3% (1.6% y/y) after rising 0.2%.

**Services prices** increased 0.2% (3.4% y/y) in January, after rising 0.4% in December. Housing & utility prices rose 0.3% (4.3% y/y) for a second straight month, and services prices excluding energy & healthcare increased 0.4% (4.0% y/y) last month after the same increase in December. Recreation services costs strengthened 1.1% (3.4% y/y) after two straight months of 0.3% increase. Healthcare prices eased 0.1% (+1.8% y/y) after a 0.3% increase. Transportation prices fell 0.4% (+4.0% y/y) after surging 1.8% in December while hotel & restaurant prices rose 0.4% (3.0% y/y) following a 0.1% uptick.

**Personal consumption expenditures** (PCE) eased 0.2% (+5.6% y/y) after rising 0.8% in December, revised from a 0.7% gain. A 0.2% increase had been expected in the Action Economics Forecast Survey. When adjusted for price changes, PCE fell 0.5% (+3.0% y/y) last month, reversing December’s 0.5% gain.

**Real spending on durable goods** weakened 3.4% (+5.3% y/y) in January, after a 1.8% December increase. Real spending on motor vehicles declined 6.0% (+6.7% y/y), after a 2.3% December increase. Real outlays on furnishings & appliances fell 1.5% (+5.1% y/y) last month and reversed December’s 1.6% gain. Real spending on recreational goods & vehicles weakened 2.9% (+5.2% y/y) last month, after a 1.9% December increase. Spending on “other” durable goods fell 0.4% (+2.1% y/y) after strengthening 1.0% in December.

**Nondurable goods** spending in real terms fell 0.8% (+2.0% y/y) in January following a 0.7% gain. Real clothing and footwear purchases improved 0.3% (0.6% y/y) last month, following a 0.7% gain in December. Real food & beverage purchases were off 0.6% (+1.6% y/y) and reversed all of December’s increase. Real outlays on gasoline & other energy products improved 0.6% (2.8% y/y), after strengthening 1.7%. Real spending on “other” nondurable goods declined 1.6% (+2.5% y/y) last month, following a 0.6% rise.

**Real spending on services** edged 0.1% higher (2.9% y/y) in January, following a 0.3% December increase. Real spending on housing & utilities rose 0.5% (1.6% y/y) last month, after increasing 0.6%, while real health care spending rose 0.1% (4.4% y/y) following three straight months of 0.2% increase. Real spending on food services & accommodations gained 0.5% (1.8% y/y) after easing 0.1% during December. Real spending on financial services & insurance eased slightly (+2.4% y/y) after a 0.1% improvement. Real spending on transportation services rose 0.3% (5.3% y/y) in January, after strengthening 1.9% in December. Recreation spending fell 0.5% (+2.7% y/y) after rising 0.6% in December. A 0.2% rise (3.1% y/y) in spending on “other” services followed a 0.5% improvement in December.

**Personal income** rose 0.9% (4.6% y/y) in January, after an unrevised rise of 0.4% in December. A 0.4% gain was expected. Wages & salaries rose 0.4% (4.5% y/y) last month, the same as in December. Rental income improved 1.4% (5.8% y/y), after rising 0.5% in December. Proprietors’ income moved 1.5% higher (5.5% y/y), following a 0.7% gain in December. Income from assets rose 1.1% (0.5% y/y), after rising 0.3%, and current transfer receipts strengthened 1.8% (7.4% y/y) in January, after rising 0.3% in December. Government social benefits also rose 1.8% (7.6% y/y) in January, after a 0.3% improvement in the prior month.

**Disposable personal income** increased 0.9% (4.4% y/y) in January, following a rise of 0.4% in December. After adjusting for price changes, disposable income rose 0.6% in January following two months of 0.2% increase. The y/y increase has slowed to 1.8% from 4.7% at the end of 2023.

**The personal saving rate** rose to 4.6% in January, after declining to 3.5% in December. It began the year at 5.5%. Personal saving rose 32.2% (-13.6% y/y) in January, after falling 8.5% in December.

The personal income and consumption figures are available in Haver’s **USECON** database with detail in the **USNA** database. The Action Economics forecasts are in **AS1REPNA**.

**Supply and Demand Drivers of Global Inflation Trends** from the Federal Reserve Bank of New York can be found [here](https://libertystreeteconomics.newyorkfed.org/2025/02/supply-and-demand-drivers-of-global-inflation-trends/).

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- Price index held in check by slower gains in services prices.
- Real spending reverses December rise.
- Disposable income surges and savings rate jumps.

U.S. Core PCE Price Inflation Is Moderate in January; Real Spending Declines

Winnie Tapasanun

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The advance estimate of the U.S. international trade deficit in goods ballooned to $153.26 billion in January after widening to $122.01 billion in December, data from the U.S. Census Bureau showed. The January deficit was the largest on record and much larger than a $90.28 billion shortfall in January 2024. A deficit of $115.0 billion for January had been expected by the Action Economics Forecast Survey. The deficit had reached a high of $120.72 billion in March 2022. In Q4'24, the goods trade deficit widened to $324.13 billion, the largest since Q1'22, after rising to $307.39 billion in Q3'24. The goods trade deficit added 0.24%-point to real GDP growth in Q4'24 after having subtracted 0.44%-point in Q3'24. The monthly deficit averaged $108.04 billion in Q4'24, the biggest since Q1'22, up from an average of $102.46 billion in Q3'24.

Total goods exports rose 2.0% m/m (1.8% y/y) to $172.16 billion in January, the second monthly rise in three months, following a 3.8% decline in December. Nevertheless, exports had fallen 5.0% since a July 2022 high. The rise in exports in January reflected exports m/m rebounds of 10.9% (2.7% y/y) in nonfood consumer goods excluding autos and 8.0% (10.1% y/y) in capital goods excluding autos. To the downside, exports for the following end-use categories fell m/m in January: other goods (-13.8%; +13.2% y/y), foods, feeds & beverages (-7.9%; -2.1% y/y), automotive vehicles & parts (-3.0%; -15.5% y/y), and industrial supplies & materials (-0.4%; -1.7% y/y).

Total goods imports jumped 11.9% m/m (25.5% y/y) in January on top of a 4.0% rise in December, posting the third consecutive m/m increase and the largest since July 2020. The January goods imports of $325.42 billion was the biggest on record. Imports had risen 12.5% since a March 2022 high. The jump in imports in January reflected m/m increases in all imports end-use categories. These included m/m rises of a record 32.7% (63.2% y/y) in industrial supplies & materials, 8.5% (15.7% y/y) in other goods, 8.3% (25.9% y/y) in nonfood consumer goods excluding autos, 4.8% (17.4% y/y) in capital goods excluding autos, 4.3% (19.1% y/y) in foods, feeds & beverages, and 2.3% (-6.1% y/y) in automotive vehicles & parts.

The advance international trade data can be found in Haver's **USECON** database. The expectation figure is from the Action Economics Forecast Survey, which is in **AS1REPNA**.

- Deepening in goods trade deficit after December’s widening.
- Exports rise 2.0% m/m vs. a 3.8% December drop, led by a 10.9% rebound in exports of consumer goods ex-autos.
- Imports, up in all end-use categories, jump 11.9%, the largest m/m increase since July ’20 to a record level, led by a record 32.7% surge in imports of industrial supplies & materials.

U.S. Goods Trade Deficit Unexpectedly Widens to a Record $153.3 Billion in January

Robert Brusca

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French inflation trends alone among the largest four EMU economies is showing a break lower. Twelve-month inflation across the EMU is however quite mixed with Germany and Spain knocking on the door of 3% inflation while France is below 1% and Italy is below 2%.

And the divergences diverge further from there...
 
German inflation rises from 2.8% over 12 months to a 3.3% pace over six months to 4.1% over three months – a classic ongoing acceleration. Spain’s 12-month pace of 2.9% also steps up to 4.5% annualized over six months then explodes to 5.7% over three months. The accelerations are not good for central bank trying to hit a 2% inflation goal.

But the accelerations are counterbalanced by some moderation and even weakness. French inflation decelerates steadily, and prices actually decline over six months and three months. For Italy, the 12-month pace of 1.7%, steps back to 1.3% over six months, then rises back to a 3% annual rate over three months.

Even so, the best news is from Italy and Spain on the measure of core inflation. Each of them reports a steady menu of inflation rates over 12 months, six months, and three months below 2% and decelerating. This is notable because both Italy and Spain have badly behaving headline inflation trends.

However, energy prices are moving up, too, over the last three months as well as sequentially.

While inflation is still far from well-behaved, it may still be slowing. Signs of conforming Italian and Spanish core results are the most encouraging news. Still, over the past five years, inflation has averaged 3.2% in France and 4.4% in Germany, with Italy and Spain seeing inflation at the 3.7% to 3.8% mark. Core inflation over five years, however, has been lower and closer to the 2% goal at 2.5% in France, 2.8% in Italy, 3.2% in Spain, and 3.6% in Germany. Still, it’s not there but it is closer.

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Still, the ECB has not brought inflation home to target; neither has the Fed, in the U.S. Meanwhile, unemployment rates in the European area are still near all-time best levels and generally low across member countries. The Fed and the ECB, have priorities slanted toward unemployment/employment and both have been content to take the top off inflation without hitting their targets. It is hard to see how with these shifted priorities markets are going to conclude that hitting the 2% inflation target is a real objective and priority. We will continue to watch and see how central banks approach policy in the months ahead.

Europe

EMU Member Inflation Still Mixed and High

Andrew Cates

**US growth surprises**
Chart 1 below illustrates how the 2-year Treasury yield, a key gauge of market expectations for Fed policy, has closely tracked economic surprises in recent months. When data exceed expectations, yields have generally risen, whereas weaker-than-expected reports have coincided with declines. More recently, US economic data has increasingly underwhelmed, pushing the surprise index into negative territory and to its lowest level since last September. This downward shift in yields has occurred despite a notable rise in inflation expectations across several surveys, highlighting a growing disconnect between inflation concerns and broader growth momentum.

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**Shifting US trade dependencies**
Latest US data also reveal a persistent and widening trade deficit in goods. This stands in contrast, moreover, to a relatively stable and steadily improving surplus in services trade. Over the past three decades, the US has become increasingly reliant on services exports, while continuing to import large volumes of manufactured goods. The chart potentially suggests that protectionist measures have done little – so far - to reverse the downward trajectory of the goods trade balance. Meanwhile, the strength in services trade suggests that traditional trade policy tools, such as tariffs on physical goods, could be increasingly disconnected from the realities of a modern economy. As digital trade and knowledge-based services grow in prominence, the effectiveness of tariffs in addressing trade imbalances becomes increasingly questionable.

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**Uncertainty and the dollar**
Chart 3 below suggests that economic policy uncertainty has jumped sharply higher in recent weeks, and at the global level, to near-record highs. Historically, periods of heightened uncertainty—driven by factors such as trade tensions, monetary policy shifts, and geopolitical instability—have been accompanied by an appreciation in the dollar as investors seek safe-haven assets. The recent surge in uncertainty certainly highlights how concerns over US trade policy and broader macroeconomic risks are creating tensions and serves as a reminder that this can create feedback loops where heightened risk perceptions reinforce currency movements, amplifying global economic and financial instability.

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**The end of the peace dividend?**
Recent days have seen several European governments either commit to – or publicly opine on – lifting their defence expenditure. Prior to these developments there had been a long-term decline in military spending as a share of GDP across the likes of the UK, France, and Germany, a trend that began in the post-Cold War period (chart 4). While all three countries significantly reduced military expenditures during the 1990s and early 2000s, the pace of decline has been most pronounced in Germany, which has historically maintained a more restrained defence posture. However, in recent years, military spending has begun to tick upward, reflecting renewed geopolitical tensions, particularly in light of Russia’s invasion of Ukraine. The increase in defence budgets suggests a shift in priorities, with European nations facing pressure to contribute more to their own security amid broader concerns about NATO’s long-term cohesion.

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**Country risks**
This next chart deploys the Dun and Bradstreet indicators that are now stored on Haver’s platform to rank country risk based on a range of economic and political factors. Mexico appears to face the highest overall risk at present among the countries listed, likely due to its heavy exposure to US trade policies and domestic political concerns. Meanwhile, Canada and the US have some of the lowest risk ratings, suggesting relative economic stability. However, while these lower scores indicate resilience, they bear watching closely in the coming months for the growing risks tied to trade protectionism and shifting geopolitical alliances.

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**Canada’s economy**
Chart 6 below shows a steady increase in Canada’s supply risk rating over the past two years and potentially points to growing challenges for businesses operating in the manufacturing sector. Rising trade frictions, supply chain disruptions, and geopolitical risks have all contributed to an environment where Canadian businesses face greater uncertainty and operational hurdles. While Canada has traditionally been viewed as a stable and reliable trade partner, the evolving landscape—particularly in the wake of shifting US trade policies—has introduced new complexities. The chart potentially underscores how trade uncertainty might translate into real economic consequences, with businesses needing to adapt to a more volatile and unpredictable global trade environment.

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The global economy remains fragile, with financial markets showing resilience despite persistent policy uncertainties, geopolitical risks, and uneven growth. Investors have largely adopted a wait-and-see approach, balancing inflationary pressures and rising US trade protectionism against looser monetary policy and optimism about AI-driven productivity gains. This week’s charts highlight the growing complexities in global trade and economic policy, where traditional tools, such as tariffs, could be increasingly misaligned with economic realities. Recent US survey data, for instance, indicate a sharp rise in inflation expectations, likely fuelled by concerns over tariffs, which have simultaneously weighed on consumer confidence (chart 1). Meanwhile, latest US trade figures reveal a record deficit in goods trade alongside a widening surplus in services trade, further emphasizing why tariffs alone are unlikely to correct trade imbalances (chart 2). At the same time, shifts in US trade policy have coincided with near-record highs in global economic policy uncertainty. By dampening business and consumer confidence, this could weaken US export demand, complicating the intended effects of trade restrictions. Another dynamic is unfolding in Europe, where geopolitical tensions are prompting governments to increase defence spending, introducing yet another layer of uncertainty into the macroeconomic outlook (chart 4). In short, downside risks to global growth are mounting. Sector-specific and country-level risk indicators, such as those provided by our data partner Dun and Bradstreet, and which capture these underlying pressures, will certainly be useful for monitoring broader economic risks in the months ahead (charts 5 and 6).

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Economic Recovery in Eastern Europe

Summary

Louise Curley

More Economy in Brief

U.S. Core PCE Price Inflation Is Moderate in January; Real Spending Declines

U.S. Goods Trade Deficit Unexpectedly Widens to a Record $153.3 Billion in January

EMU Member Inflation Still Mixed and High

Charts of the Week: No Free Lunch

GDP In Billions of USD	Q4 11	Q3 11	Q2 11	Q1 11	2011	2010	2009	2008	2011/ 2008
Slovenia	12.0	12.6	12.8	12.0	49.6	46.7	49.0	54.8	90.5%
Slovakia	23.6	24.6	24.9	23.1	96.1	87.4	87.6	94.8	101.7%
Romania	46.3	48.3	49.0	44.6	188.1	162.6	163.1	202.6	88.5%
Poland	128.3	137.1	130.3	118.9	514.9	469.0	433.1	535.0	96.2%
Bulgaria	12.2	14.0	14.2	13.3	53.7	47.6	48.2	51.8	103.7%