Haver Analytics
Haver Analytics

Economy in Brief

    • Index increases to two-year high.
    • New orders & shipments lead increase as employment improves modestly.
    • Prices paid & received readings ease.
  • Europe
    | Sep 16 2024

    EMU Trade Surplus Erodes

    The European Monetary Union trade surplus moved lower in July. At €15.46 billion, it is down from €17.02 billion in June. The erosion was due to a larger deficit on nonmanufacturing trade as the manufacturing balance actually improved to €39.1 billion from €37.9 billion. However, on nonmanufacturing trade, the deficit swung to -€23.7 billion from -€20.9 billion.

    The chart provides the hint that the move back to surplus may have passed its peak as there is a string of surpluses having swept up to higher levels and now engaged in the process of headed for lower levels.

    The trend for exports shows overall exports slowing then declining steadily from a growth rate of 2.5% over 12 months to 0.6% over six months to -8.1% over three months. This transition is driven by the growth rates of manufacturing as well as nonmanufacturing exports; both of which transition from positive growth rates over 12 months to negative growth rates over three months.

    On the import side, the patterns are inconsistent although they culminate in weakness over three months. Total imports fall 2.5% year-over-year, advance at an 11.4% annual rate over six months, and then decline at a 3.2% annual rate over three months. Manufacturing imports follow this same progression; however, for nonmanufacturers, growth is at 3.2% over 12 months, that expands to a 15% annual rate over six months, and then collapses to -3.4% over three months. Import trends are chaotic.

    Turning to three European countries two of them the largest countries in the European Monetary Union, we find Germany has exports declining progressively and imports doing the same. Both German export and import flows are slowing consistently and declining with imports falling faster than exports. For France, exports are accelerating from 4.3% over 12 months to 5.3% at an annual rate over six months to nearly 12% at an annual rate over three months. French imports, in contrast, don't have a clear trend but they are declining on each of those horizons. The U.K. shows declines in exports and imports year-over-year that are relatively balanced and again declines over six months that are relatively balanced for the two flows. But over three months, U.K. exports advance at an 11.3% annual rate while imports are basically unchanged at a 0.1% annual rate.

    Export trends for Finland, Portugal, and Belgium find cross trends, with Finland showing a decline in exports of 17.3% at an annual rate over three months. But Portugal shows exports accelerating from 12-months, to six-months, to three-months, culminating in a 45.9% annual rate pace over three months. Belgium shows an export decline over 12 months that gives way to increases over three months and six months but again without a clear trend.

    The trends for the three-month growth rates are positive for the EMU aggregates and for the exports of Finland, Portugal, and Belgium. But trends are negative for exports as well as imports for Germany France and the U.K. Over 12 months, most of the calculations show declines in trade flows, underpinning again the notion that manufacturing has been weak in Europe. That weakness lends itself to weakness in both the exports and imports; European weakness in manufacturing naturally leads to knock-on weakness in trade. That is not surprising. It has been the strength in the services sector that has tended to keep growth alive, especially in Europe.

  • In this week's newsletter, we examine China and highlight growing economic concerns. Investors had already expressed scepticism about China’s growth prospects even before the recent data were released (Chart 1). But this scepticism has been further validated by the latest figures, which show ongoing – and often worse than expected - deterioration (Chart 2). However, there is a hint of optimism: China's exports surpassed expectations in August, although import figures were disappointing (Chart 3). Consumer price pressures are increasing, but not severely, while producer prices continue to decline (Chart 4). As for the labour market, youth unemployment remains in double digits, with a significant rise in July, but potentially due to seasonal factors (Chart 5). Lastly, investor sentiment remains cautious, as indicated by continued outflows from Chinese equities, falling stock prices, and a generally negative market mood (Chart 6).

    The China outlook China’s recovery remains uneven, with GDP growth slowing significantly to 4.7% y/y in Q2 versus 5.3% in Q1 (Chart 1). And pockets of instability persist. The property sector, for example, continues to struggle, with house prices having fallen more sharply in recent months despite numerous efforts by the authorities to address excess supply and stimulate demand. China continues to face external challenges as well, particularly in the electric vehicle (EV) sector, among others. Major economies, including the EU and Canada, have recently followed the US in imposing tariffs on imports of China-made EVs. Against this backdrop, Blue Chip Economic Indicators (BCEI) panelists downgraded their outlook for China this month. They now forecast GDP growth of 4.7% for 2024 and 4.3% for 2025, down from respective projections of 4.8% and 4.4% last month. These adjustments suggest that China is now seen unlikely to achieve its 5% growth target for this year.

    • Import price weakness is led by lower oil prices.
    • Price declines of other imported goods are widespread.
    • Export price decline reflects lower food prices.
    • Home prices slip & mortgage rates decline.
    • Median income edges up.
    • Affordability increases throughout the country.
  • In the wake of European Central Bank rate cuts, the European Monetary Union reports a 0.3% reduction in industrial production in July. Industrial production in the euro area shows a decline of 2.2% in output over 12 months; the rate of decline improves slightly to -1.6% when annualized over six months but then has a severe setback over three months as it falls at a 4.8% annual rate. You simply cannot put positive spin on this month’s report or on the trend. The best we can is that year-on-year trends are not worsening; several are potentially encouraging if they persevere.

    The patterns in manufacturing are the same but manufacturing output declines at an 8.2% annual rate over three months, a much larger decline than for output overall. Sectors show some upbeat trends for consumer goods, as output is up by 1.6% over 12 months and then continues to advance at a 4.3% annual rate over six months and over 12 months. The increase in overall consumer goods output is underpinned by a steady acceleration in nondurable goods output and held back by declines in durable goods output over 12 months, six months and three months. Intermediate goods output faces a decelerating profile, with output falling 3% over 12 months, falling at a 3.7% annual rate over six months, and falling at a 6% annual rate over three months. The capital goods progression is not as steadily deteriorating, but it's a chilling development since output falls by 5.1% over 12 months, then that decline is trimmed to -2.9% at an annual rate over 6six months, but it comes back to show a 12.6% decline at an annual rate over three months. That's not a clean steady deterioration but the 12.6% pace of decline over three months is certainly chilling.

    In the quarter-to-date, which is at this point a nascent calculation, one-month into the new quarter. Overall output falls at a 3.9% annual rate, manufacturing output falls at a 5.3% annual rate, consumer goods output is rising strongly pushed ahead by nondurable goods output. But apart from that, there are ongoing sharp declines in consumer durables output, the output of intermediate goods, and then the output of capital goods.

    The performance of industrial output in July supports the decision by the ECB to cut rates even though that decision occurs with inflation over the top of its target and still accelerating. However, the factory sector has been weak for quite some time and the services sector has been strong enough to provide overall expansion for the economy. The goods sector is simply the weakest part of the economy and so it's going to seem like it is in support of any policy step taken to offset weakness.

    EMU member countries The country level data for 13 of the earliest European Monetary Union members shows output declines in July in six of these reporters. In June, there were output declines in five of them; in May, there were output declines in seven of them.

    Sequential calculations show that output has been increasing less broadly from 12-months to 6-months to 3-months. Over 12 months about two-thirds of the reporting countries showed output increases/ Over six months that fell back to 50% of them, whereas over three months only a little better than one-third of the reporting monetary union members are indicating accelerating output. In addition to that, over the last three months eight countries show actual declines in output in progress.

    • Q2 credit demand was 14.7% of GDP, somewhat larger than Q1’s 14.0%.
    • Federal government continues as largest borrowing sector.
    • Household and businesses each borrowed about $600 billion in Q2.
  • The ECB’s decision to lower its key policy rates by 25 basis points this week, while widely anticipated, nevertheless underscores a shift in focus, with central banks now prioritizing economic growth and monetary stimulus. This marks a departure from the post-pandemic period when monetary policy was calibrated to curb inflation. In our charts this week we take a closer look at the global inflation scene. We highlight, for example, the growing confidence from economic forecasters in recent months that inflation would fall to target-friendly levels (chart 1). We move on to examine some of the factors that have driven inflation down to those levels, including easing supply side pressures and slower demand (chart 2). That labour market activity is now additionally beginning to weaken in some major economies, and most notably the US, has generated some pay-off too in the form of weaker wage inflation (chart 3). Where exactly inflation will now settle beyond the next few months is more nuanced and subject to a far more active debate. De-globalisation pressures and climate change, for example, might leave inflation higher for longer in the years ahead. On the other hand, other structural forces, such as the rise in remote working, might help to restrain wage and broader inflationary pressure (charts 4 and 5). Technological innovations, and particularly AI, could also play a significant role in the future by boosting productivity growth and reducing unit cost pressures. But while there is now greater certainty regarding the near-term inflation outlook, considerable uncertainty remains about the longer-term impact of these shifts on the global economy’s supply side (chart 6). They could either enhance efficiency, for example, or introduce new challenges, leaving their effects on inflation and cost structures highly unpredictable beyond the immediate future.