Economy in Brief

Germany’s GfK survey for consumer climate fell sharply to -29.7 in February from -25.4 in January. This sharp deterioration reversed this two months of improvement in the index. This is the eighth sharpest month-to-month drop in the index headline and it is sharper than any drop experienced before May 2020. The GfK climate metric was last weaker in March 2023, nearly a year ago. Taking the current estimate, positioning it between its highest and lowest historic readings puts it at the 24.3 percentile mark, in the lower quartile of its historic high-low range. However, if we alternatively rank the observation in an ordered queue of data on the same timeline back to 2022, the February percentile standing drops to 3%. That tells us that the GfK index has been this weak or weaker only 3% of the time since 2002. The index is extremely weak, and it is dropping fast- a very bad combination.

German weakness amid global hope The graphic shows how the coming of COVID completely destroyed German confidence/climate that fell sharply and has been hovering around extremely weak readings ever since COVID occurred. And then, of course, in the wake up COVID, there was the Russian invasion of Ukraine. At the same time, the ECB has been relentlessly pursuing inflation which kicked up during this period. Among these three events, the German economy has simply been reeling. And German consumers are facing some of the worst conditions they've seen in the last two decades. Not surprisingly, Germany also faces political leadership questions. While some recent reports have showed that global conditions seem to be bottoming out and beginning to show some positive outlook, the GfK survey stands in marked contrast to this result.

Survey details – the news does not get better The details of the survey lagged by one month; they are for January 2024. German economic and income expectations fell sharply in January compared to December; economic expectations were last weaker in December 2022; income expectations were last weaker in March 2023. The propensity to buy also fell sharply in January, but it was last this weak only a couple of months ago in November 2023. The percentile account standings of these metrics show economic expectations in the lower 25.5 percentile of their ordered queue; for income expectations the standing is even weaker than that in the lower 7.2 percentile; the propensity to buy is the lower 22.1 percentile of its range. All of these are weak. And all of them have gotten significantly weaker in just the last month or two. In fact, the month-to-month drop in economic expectations has been worse only 21% of the time, and the monthly drop in income expectations has been worse only 4% of the time -Yikes!

Other Europe Confidence metrics for other-Europe are sampled from Italy, France, and the United Kingdom. The U.K. and France have readings that lag by a month behind the German reading while Italy’s reading lags by two months. The most recent observation for each one of these three countries shows an improvement compared to the month before. All three countries are on a multi-month improving trends for their confidence readings as well. None of them have confidence readings as deeply negative as Germany's. The U.K. confidence reading has a 34-percentile standing, the French reading has a 38-percentile standing, and Italy has a 74.7 percentile standing that is well above its median and seems to indicate a good deal of contentment.

GfK was worse than expected Germany’s GfK consumer climate index is a slice of unexpected bad news and at a time that other global metrics and other countries have been experiencing some improvement in their numbers and in their trends. For example, the S&P PMI indexes have showed some improvement and a bottoming out even though those indicators lag. There have been diminishing signs in the S&P survey of conditions of getting worse globally – some stability or even improvement seems in-train. The U.K., France, and Italy each show some improving trends in their confidence metrics. The United States not only did see its S&P PMI gauges improve, but the 2023-Q4 GDP report for the U.S. registered a very solid 3.3% growth after a strong third quarter, much better than private economists, or the Fed or even the administration, were looking for. At the same time, U.S. inflation data are amid an improving streak that left the core PCE deflator in the GDP report registering a 2% advance in terms of annualized quarter-to-quarter growth rates for both the third and fourth quarters. Year-over-year inflation on any measure is still well above the Fed’s and other central banks’ 2% target, but these recent releases for the U.S. are quite tantalizing and put the U.S. in a very different situation than any other country that has recently been reporting economic data.

The Belgian National Bank index fell to -16.4 in January from -12.7 in December, snaking below its November 2023 level of -15.0. The index by itself is not particularly significant except it does track quite effectively both the German and the EU indexes issued by the European Commission. Since the Belgian index is released first, it's a harbinger of what we can expect from those other indexes and what's suggested here is that there will be further deterioration in January.

The total index The total industry Belgian index has a correlation of 0.85 with the EU index and of 0.78 with the German index. However, it's correlation based on month-to-month changes is even higher, at 0.92 with the EU changes and 0.85 with the German changes. These are all respectably high numbers and the correlations with the changes are quite high. The correlation on the changes corresponds with an R-squared with the EU of 0.86 and an R-squared with the German changes of 0.72.

Manufacturing in Belgium The Belgian manufacturing index slips to -22 in January from -17.8 December and is below its November value of -19.3. In January, the production trend turned more deeply negative, logging a reading of -19 compared to -7 in December and -5 in November. The domestic and foreign order trends also deteriorated in January compared to December; however, the foreign order trend in January is above its November level. Prices continue to show negative values and then in January the price trend declined by more after declining by less in December.

Other Belgian sectors Wholesaling and retailing strengthened in January compared to December, but metric is weaker than its November reading. Similarly, construction weakened relative to December but it's stronger than its November reading. Business services along with inventories are the only surveyed metrics that show positive readings. In January business services weakened compared to December, falling to +4.6 from +9.8; however, the January reading is still stronger than the November reading.

Trending changes Looking at changes in these metrics, only business services show positive changes over three months, six months, and 12 months. Prices and domestic order trends are the only metrics that show positive changes over three months and six months.

Rank standings The rank percentile standings reveal that weak readings abound in every one of the categories, showing percentile standings below their respective 50th percentiles everywhere. That means that all the readings are below their respective medians for this period. Data in the table are ranked across observations back to January 2010.

The distribution of weakness is concentrated in the areas of ‘very weak’ The only category close to its median for the period was inventories with the 49.2 percentile standing. After that, the next strongest standing is business services at a 38-percentile standing, followed by prices at a 25.8 percentile standing. The third highest standing in the table is at the border of its bottom quartile! After ‘prices’ all the categories are somewhere in their 15th percentile with all but one of the remaining categories below their respective 10th percentiles.

Weak with weak momentum These conditions show us a great deal of weakness in Belgium from an index that is highly correlated with German and EU indexes. The only momentum in this table comes from Belgian business services where there's a steady diet of positive changes underway. The changes that are underway for business services are tending to get larger/stronger over shorter periods, which is a good sign. However, manufacturing continues to show negative results and the current assessment for orders continues to show negative results.