Europe Rebounds With a Bang But Germany Disappoints: GDP Update
(Bloomberg) -- The euro-area economy rebounded sharply in the second quarter as businesses reopened following the lifting of lockdowns.
Output in the 19-nation region increased 2%, beating economists’ estimates and dusting off the impact of restrictions that crippled business activity during the winter months.
The economy is set to see even stronger growth in the current quarter -- unless persistent supply bottlenecks or resurgent infections throw a spanner in the works. The European Central Bank has warned that the region has a “long way to go” before the damage caused by the pandemic is repaired.
The strongest rebounds in the second quarter in major economies were seen in Italy and Spain and growth in France came slightly ahead of expectations. The biggest surprise was Germany’s lackluster recovery, with output expanding 1.5%, below the 2% median estimate in a Bloomberg survey.
A separate report showed inflation in the euro area climbing to 2.2% in July, exceeding estimates. While the level is higher than the new goal set by the ECB, policy makers have said the surge in prices will ultimately fade.
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Germany’s supply chain woes (11:40 a.m.)
Germany’s data show the recovery was dragged down by supply chain problems. “The only good thing about these supply chain frictions is that eventually, they will end,” according to Carsten Brzeski, an economist at ING.
“As order books are richly filled and inventories are still low, activity in the German industry will accelerate,” he wrote in a report.
Euro-area GDP, inflation, unemployment (11 a.m.)
The ECB predicts the euro area will take until early next year to recover its pandemic losses, and its second-quarter performance means the economy is now closer to reaching this goal.
President Christine Lagarde has argued that “significant slack” in the economy is weighing down wages, a trend that keeps inflation pressures contained.
In July, consumer prices rose 2.2%. Yet policy makers predict that rate to decline again next year as temporary factors fade, with inflation projected to average just 1.4% in 2023. Italy’s inflation rate rose to 1.8% in July the year before, 0.3% from June.
“We expect upward pressures to intensify in the coming months, possibly taking annual price gains to more than 3%,” Maeva Cousin, senior economist at Bloomberg Economics, wrote in a report about euro-area figures. “But these pressures should prove transitory, allowing inflation to slip back below the European Central Bank’s 2% target next year.”
Unemployment in the bloc expectedly fell to 7.7% in June, the lowest in a year.
Portugal GDP (10:30 a.m.)
Portugal’s economy grew 4.9% in the second quarter as restrictions were eased and some tourists returned to the country. GDP had contracted in the first quarter after the country faced one of the world’s worst coronavirus outbreaks in January, forcing the government to implement strict confinement measures at the time.
German GDP (10 a.m.)
German output increased just 1.5% in the second quarter, falling short of economist predictions for a 2% increase.
The trade-reliant economy has benefited from a rebound in global demand in recent months and companies are reporting full order books. The number of people on state wage support fell to 1.5 million in June, the lowest level since before lockdowns started last year, and the Bundesbank predicts output is on the verge of making up the ground lost during the pandemic.
Yet warnings are growing louder that supply bottlenecks -- along with resurgent infections -- could slow the recovery down. Business confidence unexpectedly slipped in July as manufacturers complained about shortages of raw materials, delivery delays and rising costs.
Italy’s GDP (10 a.m.)
Italian GDP rose 17.3% in the second quarter compared to a year ago, and 2.7% from the previous quarter, showing the economy is bouncing back from one of the euro-area’s deepest recessions in 2020.
Finance Minister Daniele Franco said this month that growth exceeding 5% seems reachable this year and that the economy could regain its pre-pandemic size by the third quarter of 2022.
Growth is Italy’s best hope of managing its massive debt, which grew to nearly 160% of GDP as the government spent heavily to manage the fallout from the pandemic. Prime Minister Mario Draghi is wagering that a package of 260 billion euros in EU and national recovery plans cash will finally help bring Italy’s economy permanently out of the doldrums.
Italian unemployment (9 a.m.)
Italy’s unemployment rate fell to 9.7% in June from a revised 10.2% in May. Economists had predicted an increase to 10.6%.
The country added 267,000 jobs compared with the same period a year ago, when Italy was just emerging from a strict lockdown. The economy, however, is still 470,000 jobs away from the pre-pandemic period, according to statistics agency Istat.
Le Maire: France on track (9 a.m.)
French Finance Minister Bruno Le Maire said second-quarter figures put the economy on track to meet the government’s 6% growth forecast for 2021.
“Everything is picking up again: consumer spending, investment, confidence,” Le Maire said on France Inter radio.
The minister said the economy is only being held back by supply bottlenecks, particularly in construction, and labor shortages in the hospitality sector.
Le Maire is working on options for a long-term investment plan that President Emmanuel Macron will present at the end of the summer. He said it would involve investing “significant amounts” in a limited number of industries including semiconductors and hydrogen for transport.
“The idea is to give France full industrial independence and create new value chains,” Le Maire said.
Spanish GDP (9 a.m.)
Growth was buoyed by a robust rebound in household consumption and a recovery in the services sector.
The economy has been in recovery mode since the second quarter as the country rebounds from the euro-area’s deepest contraction in 2020. Gross domestic product contracted nearly 11% last year in part because of the country’s reliance on the battered tourism industry.
The government and businesses are now gearing up to invest tens of billions of euros in EU pandemic recovery funds. Madrid says the investments, which will be spread out over the next six years, will boost medium-term growth.
Austrian GDP (9 a.m.)
Austria’s economy grew 4.3% in the three months through June, rebounding from the double-dip recession caused by winter lockdowns. The country’s retail and tourism sector saw a 20.5% boost after restrictions were loosened in mid-May.
French inflation (8:45 a.m.)
French inflation slowed to 1.6% in July from 1.9% in June as a delayed start to the summer sales season put downward pressure on the prices of manufactured goods. Still, the rate was above the 1.4% expected by economists as costs for fresh foods rebounded and growth in energy prices accelerated.
Lithuanian GDP (8 a.m.)
Lithuanian output growth slowed to 0.4% in the second quarter after a sharp rebound at the start of the year, which allowed the economy to return to pre-crisis levels. Growth in the second quarter was driven by manufacturing, retail and construction, the statistics office said.
French GDP (7:30 a.m. CET)
France’s performance in the second quarter was domestically driven as trade had a slightly negative impact on output with import growth outpacing that of exports.
Statistics agency Insee also revised up the first-quarter GDP figures to show a stagnation rather than the slight contraction previously reported. That revision means the country narrowly avoided a recession -- seen as two consecutive quarters of contraction -- after a slump in the final months of 2020.
Surveys indicate the economy will strengthen further with consumer confidence above its long term average in June and July and sentiment in manufacturing at the highest level in more than three years.
Yet there are risks weighing on the outlook after a recent increase in new Covid cases due to the spread of the delta variant. In an attempt to avoid renewed lockdowns, the government is raising pressure on French people to take vaccines by making proof of inoculation mandatory for a growing number of activities such as dining out and going to the cinema.
There is also growing evidence that France is hitting supply constraints as businesses struggle to find workers and source some raw materials. According to the Bank of France’s latest survey, 44% of companies are reporting hiring difficulties.
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