Economy in Brief

German trade showed a monthly supply widening to €27.5bln from €23.3bln in December. Goods exports advanced by a strong 6.3% month-to-month in January as imports also rose by a strong 3.6% even though imports trailed exports by a large margin.

However, those are simply monthly data and monthly trade figures ae quite volatile. The table also offers perspective with 12-month, 6-month and 3-month growth rates also presented. On that profile, exports show strong acceleration in train with the 12-month growth at 0.3%, moving up over six months and culminating in a very strong 23% annualized pace over three months. Import trends do not exhibit their monthly strength of January sequentially. Imports fall by 8.3% over 12 months, fall slightly more slowly over six months, and then trim that pace of decline to -6.2% over three months.

The German export progression speaks of a recovering global economy. We have seen the Global PMI data stabilizing and slightly improving in recent months. Germany exports are rising on the back of that development. But German imports are contracting and doing so over each of these horizons.

Import weakness reflects the weakness in Germany’s economy. A new forecast from the IFO underscores the reality of that weakness. The IFO outlook sharply downgrades its own previous prediction for German growth. The institute trimmed growth outlook for this year to 0.2 percent from 0.9 percent. Its projection for 2025 was lifted somewhat to 1.5 percent from 1.3 percent.

The IFO offers up a melting pot of reasons explaining why the outlook is for further weakness. The IFO warns that there has been consumer restraint, high interest rates, government austerity in Germany, and a weak global economy in addition the higher prices brought by inflation have combined to damp growth and reduce the IFO outlook. Still, the IFO looks for inflation to slow and drop back into its target in 2025.

The table offers up-to-date nominal export and import figures as well as a spectrum of more detailed export and import trends as well as data expressed in real terms. For comparison, the table offers one-month lagged real data along side the more detailed lagged nominal data.

The sequential growth of the lagged nominal data vs. the unlagged data show a huge differences as three-month export growth runs at a 23% annual rate, but when lagged by one-month that some growth rate drops to -4.2%. The view of exports strengthening sharply is a very new phenomenon. The same comparison with imports also shows much weaker import growth on a lagged basis. When we look at the real flows near the bottom of the table, we find the real export and export trends mirror closely the lagged nominal data referred to above. The real data do not embrace the same degree of rebound and growth as the up-to-date nominal data at this time.

Composite global PMIs in February show more widespread improvement than deterioration. Only 6 of 24 reporting jurisdictions show composite PMIs below 50 indicating contraction. Only 36% of the reporters are slowing in February, month-to-month; that compares to 40% in January, and 36% in December.

If we look at the average tendencies over three months, six months, and 12 months, we see that the number of jurisdictions contracting varies between 7 and 10 over these three horizons. Looking at the tendency for slowing over 12 months 56.5% of the reporters slow compared to 12-months ago, over six months 87% slow compared to their values over 12 months, and over three months only 30.4% slow compared to their values over six months. There's a clear tendency for global composite PMI readings to improve.

The data show that the advanced economies are most uniformly getting better; the most advanced economies are the top panel of the table. Of the six jurisdictions, five of them are getting better in February, six are getting better in January. Over three months all six of them are getting better and this is after all six of them worsened over six months.

However, there is also more consistent weakness among the developing economies particularly for the Monetary Union, for Germany, and for France. For those 3 jurisdictions, the readings are persistently below 50 over the last three months as well as over three months on average, six months, and 12 months. Italy has some sporadic readings below 50; Spain keeps its composite readings above 50 on all those timelines; the U.S., also among the advanced economies, has readings above 50 on all those horizons. The only other group that shows the preponderance of readings below 50 is a scattering of countries in Africa: Zambia, Egypt, and Kenya.

The queue standings that rank these current standings over data from the last four years show persistent positive rankings below the 50th percentile for four of the six advanced economies in the top panel; these include the U.S., the Monetary Union, Germany, and France. Again, only Africa has a clustering of values that are below the 50-percentile mark and those include Zambia, Ghana, Egypt, and Nigeria. Qatar, a Middle Eastern nation, also has a standing below its 50th percentile.

Groupings of countries show the overall averages have been slightly improving over the last three months logging an average of 52.0 in February. The medians have been improving as well and the group median logs a value of 51.3 in February from 12-months to three-months to six-months. The progression is mixed for the average and there is increased weakness on that timeline for the median.

Swiss inflation both headline and core as well as HICP and its own domestic index (core and headline as well) have been showing sub-2% inflation for a quite a string of months. HICP inflation is 2% or less for the last seven months in a row with only one exception (2.1% in December). HICP core inflation, not yet available for February, is below 2% for five months in a row with no exceptions. The Swiss domestic inflation headline is below 2% for nine months in a row while core inflation on that index is below 2% for 10 months running. Of course, inflation in Switzerland is ‘always low.’ Over the past 18 years, inflation has averaged 0.5% with a median of 0.3%. While Switzerland is a success story to the rest of the world, Swiss inflation is still in the high side for, well, Switzerland.

These low rates of inflation are on the year-on-year gauge: no funny business- no three-month or six-month calculations and no disregarding special categories to engineer a 2% touch-down as some are trying to do in the U.S. Switzerland gets there with an unemployment rate at 2.2% in January. That unemployment rate is among the lowest 13% of all unemployment rates reported back to the year 2000.

Switzerland is proof that inflation can get back to normalcy. Of course, Swiss inflation had only peaked at 3.3% and its unemployment rate peaked at 3.5%. Switzerland had a much more muted Covid cycle than either the EMU or the U.S. And one cautionary note might be that Swiss unemployment bottomed one year ago and is currently engaged in a very modest up-creep, but an up-creep, nonetheless. The unemployment rate is still below the steady pace it had adhered to before Covid struck in 2019.

Inflation trends in Switzerland are on an accelerating trend but a slight one. Over 3 months, inflation accelerates in two-thirds of the categories in the table, according to diffusion calculations. Over 6 months, we find neutrally as inflation accelerates in only half of the categories; over 12 months, inflation is still broadly decelerating with acceleration present compared to the year-ago pace in only 16.7% of the categories – a marginal proportion.

Monthly inflation shows equivocation with the December diffusion rate at 58.3% (above 50% more categories are accelerating than decelerating), January is at 41.7%, and February’s diffusion is back at 58.3%. Over those recent months, we see some tendency for acceleration to become more prevalent than deceleration. However, this is happening with overall inflation at a very low pace: a 0.4% gain in December- that one is uncomfortable. But that is followed by a flat January and a rise in February of just 0.1% month-to-month. The compounded annualized pace over this three-month period has been just 2%.