The increasingly stark divide between a still-thriving US economy and floundering activity in the rest of the world was on display Tuesday.
The European economy suffered a slight contraction in Q3, Eurostat said. Economists expected a flat reading.
The 0.1% drop wasn’t pronounced by any means, but it did mark the fourth consecutive quarter of stagnation.
That’s not an especially encouraging picture. Rate hikes are plainly curbing activity, but it’s not just that. Uncertainty is pervasive, there’s a war raging on the EU’s doorstep, external demand is depressed and you have to believe the demonstrable dearth of good news is weighing on psychology both at the individual and corporate levels.
The GDP print came with the usual caveat: Ireland was an outlier. It showed a 1.8% contraction. The figures from Ireland can’t be taken at face value for obvious reasons.
Elsewhere, France and Spain managed to post small expansions (0.1% and 0.3%, respectively) and, as documented here on Monday, Germany remains mired in what I’ve described as an interminable malaise.
That’s the cost of reining in inflation. Headline price growth in Europe was just 2.9% in October, Tuesday’s release showed. Base effects were in part to thank. Energy costs fell 11.1% YoY.
Headline inflation in Europe is now below the policy rate. That’s a milestone of sorts, even if, again, it’s mostly down to energy.
Core inflation fell too, but remained more than double target at 4.2%. Services inflation barely moved and is still running 4.6%.
The ECB indicated last week that the rate-hiking campaign is indeed over. Or, at the least, that the Governing Council would like for it to be over. “The rest of the world essentially imported US monetary policy,” JPMorgan analysts led by Marko Kolanovic said this week. “That is at odds with much weaker domestic growth.”
To be fair, Europe’s GDP figures didn’t constitute a disaster. “While a technical recession is certainly possible in the second half of this year on the back of the Q3 GDP reading and a weak start to the quarter according to first business surveys, we don’t see too much reason for real alarm so far,” ING’s Bert Colijn said Tuesday. “It does look like the economic environment is weakening at the moment, but no sharp recession is in sight either.”
Meanwhile, PMIs out of China disappointed. Who’s surprised? Manufacturing slipped back into contraction this month, the NBS said. At 49.5, the factory gauge missed estimates.
Worse, the measure of services and construction activity printed just 50.6, well below the 52 markets expected.
The non-manufacturing print was the worst of 2023. The last contraction-territory reading was in December, when Chinese citizens risked… I don’t know, something really bad, to protest in the streets against Xi’s COVID curbs, only to see them (the curbs) abandoned overnight to disastrous effect from a public health perspective.
There’s a seasonal to account for in the October PMIs, but they were poor regardless. SocGen’s Michelle Lam, who’s always available when the mainstream media needs a quote, God bless her, told Bloomberg that Tuesday’s data out of China suggested “the reopening recovery could be coming to an end.” And what a recovery it was. (There’s some sarcasm in there.)
