German IP ticks up in November

Chris Scicluna
Emily Nicol

German industrial production ticks up November as energy-intensive output stabilises
Broadly in line with expectations, German industrial production rose a modest 0.2%M/M in November. With the drop in output in October revised to a steeper 0.4%M/M, the broadly sideways trend in place since the early summer remains was maintained, with production up just 0.1%3M/3M. The annual rate ticked down to -0.4%Y/Y, however. And compared to the pre-pandemic level of February 2020, German IP was still down more than 5½%. Total production in November was weighed by construction, which dropped 2.2%M/M following growth of 3.0%M/M the prior month to be down 1.5%Y/Y. However, manufacturing and mining output rose 0.5%M/M buoyed by growth of 1.1%M/M in production of intermediate goods – the best in that component in 20 months. That in part reflected welcome long-overdue stability in energy-intensive production, including of items such as chemicals and metals, which rose 0.2%M/M, perhaps reflecting the easing in wholesale energy prices following the spike in the summer.

Given the marked retrenchment in such activity of recent months, however, energy-intensive production was still down 5.5%3M/3M and 12.9%Y/Y. Among other major components, supported by a 5.6%M/M rise in production of motor vehicles to the highest in almost two years, capital goods output rose for the fourth successive month and by 0.7%M/M, to be up a healthy 3.8%3M/3M. And while output of consumer goods dropped 1.5%M/M, it was down just 0.3%3M/3M. Looking ahead, while lower prices of energy and still ample backlogs should continue to support production for a while yet, the marked drop in new orders in November to the lowest level since July 2020 suggests that output is unlikely to do any better than maintain its sideways trend over the coming months.

The equivalent Irish IP data will be published later this morning, followed by French and Spanish figures (tomorrow) and Italian and euro area IP numbers (Friday). Following a disappointing start to the fourth quarter, euro area industrial output is expected to rise around ½%M/M, insufficient to fully reverse the 2.0%M/M drop in October.

Euro area unemployment figures to suggest a tight labour market
Given the uptick in core inflation last Friday and concerns on the ECB Governing Council about the risks of second-round effects related to the tight labour market, today’s unemployment figures for November will be of note. Despite slowing economic activity, labour market resilience is likely to have continued in the middle of last quarter, with the jobless rate expected to have moved sideways at the series low of 6.5%. The ECB’s consumer expectations survey for November (Thursday) will also be watched for evidence of de-anchoring – in October the median household forecast for inflation twelve months ahead rose 0.4ppt to 5.4%Y/Y, and the median forecast for inflation three years ahead moved sideways at 3.0%Y/Y.

UK GDP to have contracted in November as high inflation and rising rates hit spending
The main data focus in the UK will be Friday’s GDP report for November. While October saw a moderate rebound – with GDP up 0.5%M/M – as the UK returned to regular working days following the Queen’s funeral in September, we expect growth to have returned to negative territory in November as high inflation and rising interest rates hit business and household spending. Retail sales were down 0.4%M/M in November, while high-frequency data suggest a notable decline in restaurant bookings that month too. Survey indicators such as the PMIs suggest that economic activity in manufacturing and services alike contracted that month too. Overall, we think GDP might well have reversed much of the increase in October to leave it down as much as ½%3M/3M. Meanwhile, tomorrow will bring the REC/KPMG report on jobs, as well as the BRC retail sales monitor, both for December

US CPI inflation set to slow sharply on lower energy prices; consumer survey measure of inflation expectations to be watched
The main US release this week will be Thursday’s CPI data for November. A drop in gasoline prices suggests that the energy component in December will decline for the second consecutive month, while increases in food prices have shown hints of slowing recently too. As such, our colleagues in Daiwa America expect total consumer prices to have declined (-0.1%M/M) for the first time since May 2020 – the Bloomberg survey consensus is for prices to be unchanged. This would leave the annual rate down 0.6ppt to 6.5%Y/Y, the lowest since October 2021. Continued slowing in core goods price pressures will likely also see core CPI rise just 0.2%M/M, close to the average in October and November (0.24%M/M) and well down on the average increase between January to September of 0.5%M/M), to leave the annual rate down 0.3ppt to 5.7%Y/Y. In addition, the end of the week will bring the preliminary University of Michigan consumer sentiment survey for January, with the inflation expectations component to be closely watched – in December expectations for inflation one year ahead fell 0.5ppt to 4.4%Y/Y an eighteen-month low, while expectations for 5-10 years ahead edged down by 0.1ppt to 2.9%.

Tokyo CPI core inflation set to rise to a new four-decade high in December
After a quiet start to the week for Japanese data, tomorrow will bring Tokyo CPI figures for December. Having increased in November to 3.7%Y/ Y, its highest rate since 1991, the headline inflation rate is forecast to rise a further 0.3ppt in December to 4.0%Y/Y, double the BoJ’s target. And when excluding fresh foods, the BoJ’s forecast measure of core inflation – which in November jumped to its highest since 1982 – is forecast to rise 0.2ppt to 3.8%Y/Y. Tuesday will also see the release of household spending figures for November, followed on Wednesday by the BoJ’s consumption activity data, which typically provide the best timely guide to the national accounts measure of consumption. That day will also bring an update on households’ inflation expectations in the form of the BoJ’s quarterly consumer opinion survey, while the Economy Watchers Survey (Thursday) will provide an update on business conditions at the end of last year.

Chinese inflation set to remain subdued, while exports likely remained weak as pandemic continued to impact production
In China, the focus will also be on December’s inflation reports on Thursday. Headline CPI inflation is expected to have edged slightly higher, by 0.2ppt to 1.8%Y/Y, albeit remaining by far the weakest of the major economies, with core inflation likely to remain below 1%Y/Y for the sixth consecutive month. And although producer price inflation is expected to have increased from -1.3%Y/Y in October and November, it is expected to have remained in negative territory at the end of last year. The latest trade figures for December will also be published on Friday, with exports forecast to have declined at a faster pace as the pandemic continued to disrupt production and global demand started to fade. 

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