German IP in June misses expectations

Chris Scicluna

Euro area: German IP & investor sentiment weak; consumer survey and final July CPI data to come
German industrial production in June was weaker than expected, dropping 1.5%M/M (compared with the drop of 0.5%M/M on the median forecast of the Bloomberg survey) to be down 1.8%Y/Y and 6.8% below the pre-pandemic level. Manufacturing output fell 1.3%M/M weighed not least by autos, which dropped 3.5%M/M following growth of 5.8%M/M the prior month. Construction output fell a steep 2.8%M/M while pharmaceuticals (7.9%M/M) provided some offset. The fall in June left German industrial production down 1.3%Q/Q in Q2, with manufacturing output down 0.6%Q/Q, construction down 1.9%Q/Q and – reflecting the final phase-out of closure of Germany’s final three nuclear power stations in April – energy production down a whopping 10.0%Q/Q. Despite surprisingly strong new orders in June, surveys suggest that German IP will drop again in Q3.

Having dropped to a seven-month low in July, and contrary to expectations of a further decline this month, the euro area sentix investor confidence index rose 2.6pts in August to -18.9, still nevertheless the second-weakest reading this year. Current conditions were judged to be weak, unchanged at July’s nine-month low of -20.5. But expectations were not quite so downbeat, with the respective index up more than 7pts to -17.3, a four-month high but still suggestive of relatively widespread pessimism about the outlook.

Looking ahead, tomorrow will bring the ECB’s consumer expectations survey for June, which will provide an update on households’ expectations for inflation, income, economic activity and house prices. And final July inflation estimates from the euro area member states will be published throughout the week, including from Germany (Tuesday), Italy (Thursday), France and Spain (Friday). The flash readings saw the headline HICP rates ease in Germany, France and Italy by 0.3ppt apiece to 6.5%Y/Y, 5.0%Y/Y and 6.4%Y/Y respectively. But Spanish inflation jumped last month, by 0.5ppt to 2.1%Y/Y, albeit still the lowest of the member states.

UK: Q2 GDP data once again to report minimal growth if any at all
The main release in the UK this week will be the first estimate of Q2 GDP on Friday. While we might expect to see some bounce back in June as the adverse impact of the additional Bank Holiday in May reversed, surveys suggest a notable slowdown in recovery momentum at the end of the second quarter. As such, we expect GDP to have merely moved sideways in Q2 to be up just 0.2%Y/Y and leave the level of output still 0.5% below the pre-pandemic benchmark in Q419, with modest growth in household consumption likely to be offset by some payback in fixed investment and a negative contribution from net trade.

BoJ consumption data disappoint; labour cash earnings data, economy watchers survey & PPI figures to come
In Japan, according to the BoJ’s consumption activity index which often provides a reliable guide to the national accounts measure of consumption, real consumer spending was disappointingly soft at end-Q2. While consumption activity in nominal terms rose 0.2%M/M, in real terms it fell 0.3%M/M, with the drop a touch larger (-0.5%M/M) on a travel adjusted basis to be down 0.6%Q/Q in Q2. Real consumption of durable goods was strong (+2.1%M/M) but that was offset by declines in non-durable goods (-0.5M/M) and services (-0.6%M/M). The most notable data of the week arguably come tomorrow, with June labour cash earnings figures and the July economy watchers survey results due. The strong spring wage settlements should be further reflected in the earnings data, after the headline rate rose beyond expectations to 2.9%Y/Y in May, with scheduled earnings up 1.7%Y/Y, the most since 1997, with overtime payments up 0.5%Y/Y and bonus payments up 35.9%Y/Y. Despite today’s soft consumption data, the economy watchers survey should be consistent with ongoing steady growth. Finally, July producer price inflation data are due on Thursday, with the headline PPI rate expected to slow 0.6ppt to 3.5%Y/Y, the slowest in more than three years.

US: PPI & consumer sentiment come at end of quieter week for data
In the US, a quieter week ahead will kick off with consumer credit figures for June today, followed by the final June trade report and NFIB small business survey tomorrow. The July Federal budget report is due Thursday along with the usual weekly jobless claims figures. And most notably perhaps, the July producer price inflation data come on Friday with the preliminary University of Michigan consumer survey results. Final demand PPI, as well as the core measure (ex food and energy), are both expected to rise 0.2%M/M to be up 0.7%Y/Y and 2.3%Y/Y respectively. And our colleagues in Daiwa America expect the headline Michigan sentiment index to edge up to 72.0, which would be a 23-month high benefiting from the recent step down in inflation and continued low unemployment.

China: Week of soft data to confirm first negative annual CPI rate since early-21
In China, a week of probably very weak economic data will start tomorrow with the July trade report. The value of exports in USD terms is expected to be down more than 13.0%Y/Y, the most since the onset of the pandemic in February 2020, with imports set to be down about 6.0%Y/Y. July’s inflation data are due on Wednesday, with the headline CPI rate set to slide 0.4ppt to -0.4%Y/Y, which would be the weakest since November 2020. Producer prices are expected to be down 4.0%Y/Y, not quite as severe a drop as the fall of 5.4%Y/Y in June. But the credit data due in the second half of the week are also expected to be soft. 

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