German IP fell for a fourth consecutive month

Emily Nicol

German IP declines for a fourth consecutive month, with construction and energy activity weaker
The release of German industrial production data this morning saw overall output fall in August for a fourth consecutive month, by 0.2%M/M. The weakness in August was led by a drop in construction (-2.4%M/M), which partially reversed the rise in July, while energy production fell a steep 6.6%M/M. In contrast, manufacturing output rose for the first month in three, by 0.5%M/M, albeit this left output in the sector trending so far in Q3 some 1.8% below the Q2 average. Later this morning, the notoriously volatile Irish IP numbers, which often have a non-negligible impact on the aggregate euro area figures, are due. These will be followed by equivalent figures from Italy (tomorrow) and the euro area as a whole (Friday).

Another focus in the euro area this week will be the publication on Thursday of the ECB’s account from its September policy-setting meeting. On that occasion, the Governing Council raised interest rates by a further 25bps, taking the deposit rate to a record high of 4.00% and the cumulative tightening since July 2022 to 450bps. But the Governing Council also hinted strongly that this will likely mark the peak for the current tightening cycle. President Lagarde also noted in her press conference that some members of the Governing Council had already wanted to pause rather than raise rates further. Ahead of this publication, Wednesday’s release of the ECB’s monthly consumer survey will provide an update on households’ price, income, spending and economic growth expectations in August. Updated German inflation figures for September (Wednesday) will provide greater granularity on the flash estimates, which saw headline German HICP inflation drop 2.1ppts to a two-year-low of 4.3%Y/Y. Final French and Spanish inflation figures are due Friday.

UK GDP expected to report some payback in August for weather-associated weakness in July
The main economic focus in the UK this week will be the release on Thursday of the monthly GDP report for August. Survey indicators, including the PMIs, signalled a deterioration in economic momentum over the summer, with the composite output index slumping more than 2pts to 48.6 in August, a level that in the five years before the pandemic would have been consistent with a substantive contraction in GDP. This notwithstanding, we expect some positive payback for the weather-associated weakness in July, which saw GDP decline 0.5%M/M. Certainly, retail sales in August (0.4%M/M) reversed some of the decline in July (-1.1%M/M). Overall, we expect GDP to have risen around 0.2%M/M in August, to leave growth on a three-month basis moderately positive at 0.3%3M/3M, which would be the firmest in thirteen months. In terms of survey results, reflecting lacklustre economic momentum, the latest REC report on jobs (due Wednesday) will likely point to a further loosening in the labour market in September. Meanwhile, amid weaker job prospects and high borrowing costs, the RICS residential survey for September (Thursday) is likely to imply an ongoing decline in house prices, while the BRC retail sales monitor (tomorrow) will provide an update on demand on the high street at the end of the third quarter. And the BoE’s quarterly Credit Conditions Survey (Thursday) will likely illustrate the impact of the MPC’s aggressive monetary policy tightening on the demand for and supply of bank loans in Q3.

US CPI figures and FOMC minutes in focus this week
While US markets reopen tomorrow, all eyes in the data calendar will be on September’s CPI release on Thursday. With gasoline prices having moved broadly sideways last month (contrasting with the 5½%M/M jump in August), Daiwa America’s Lawrence Werther expects overall consumer prices to have increased 0.3%M/M, half the rise in August and in line with the average in the year to date. This would leave the annual CPI rate down 0.1ppt at 3.6%Y/Y, but still some 0.6ppt above the recent low in June. Core prices are also expected to have risen 0.3%M/M, with services inflation underpinned by rising rents. This would, nevertheless, leave the annual rate down 0.2ppt to a two-year low of 4.1%Y/Y. Ahead of this, producer price figures are due on Wednesday along with the FOMC minutes from the 20 September policy-setting meeting. The preliminary October University of Michigan consumer sentiment survey (Friday) will also be watched for the inflation expectation measures.

Japanese sentiment surveys to provide updates on economic conditions
After markets reopen after today’s national holiday, the Japanese data calendar will be relatively thin, with focus largely on sentiment survey results. The economy watchers survey (due tomorrow) is expected to report that sentiment moved broadly sideways at the end of Q3, consistent with moderate GDP growth. Meanwhile, the Reuters Tankan survey (Wednesday) will offer an insight into business conditions at the start of Q4. And the BoJ’s quarterly consumer opinion survey (Friday) will provide an update on household sentiment and inflation expectations. In terms of hard data, Thursday will bring machinery orders in August, which will provide a guide to private sector capex growth in the middle of Q4. The latest producer price inflation figures will also be published (Thursday) and expected to report a notable further easing in the headline rate, by almost 1ppt to a 30-month low of 2.4%Y/Y.

Chinese inflation and trade figures due at the end of the week
In China, the end of the week will bring the latest consumer and producer price inflation figures, which are expected to suggest very weak inflationary pressures. In particular, the headline CPI rate is expected to have risen just 0.1ppt to 0.2%Y/Y, with producer prices expected to signal ongoing deflation at the factory gate at about -2½%Y/Y. The latest goods trade figures on Friday are expected to report ongoing declines in export and import values growth compared with a year earlier, albeit at a slightly softer pace than that reported in August.

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