UK Productivity, 1st Quarter 2022: With data on wages and hours worked as part of the labour market release, the Office for National Statistics (ONS) has published its flash estimates of productivity for the start of 2022. The headlines show that on the preferred measure - output per hour worked - productivity fell compared to the final period of 2021 with hours worked rising more quickly than output (gross value added).
Productivity in the 1st quarter of 2022 was +1.9% higher than the average for 2019 (before the pandemic) although the ONS notes that this is not significantly different from the trend that would be predicted using productivity rates for the period from 2009 to 2019.
However, this is for the whole economy and the data for manufacturing suggests a marginal quarter-on-quarter increase in productivity for the 1st period of 2022 and the latest rate is +4.8% higher than the average for 2019.
Within manufacturing, there is a range of outcomes for our key industries - note that these are at a slightly more aggregated level than for the output data that we reported last week. Therefore, while quarter-on-quarter productivity increased by +8.4% for the basic metals & metal products group and by +1.3% for the machinery industries, it fell by -0.9% for transport equipment manufacturers due to the fall in output compared to 2019 for both automotive and aerospace industries. The comparisons with the pre-pandemic average also reflect unfavourably on the latter industry group with trends of +5.7%, +5.2% and -20.9% respectively.
There are more details in the ONS Statistical Bulletin on productivity which can be downloaded from their website at https://www.ons.gov.uk/releasecalendar (17 May) or on request from MTA.
European Industrial Production, March 2022: Data from Eurostat showed a sharp drop in industrial production in March with, unhelpfully, no commentary to indicate what has caused this fall. Compared to February 2022, total industrial production in the EU fell by -1.2% which means it is -0.7% below the level in March 2021.
For the Euro-zone, which has been running at a lower level for a while now, the month-on-month trend was larger at -1.8% and the latest output level here is -0.8% less than a year earlier. It is worth noting that industrial production in Germany fell by-5.0% in March and given the size of this country, it will have had a large impact on both the Euro-zone and EU results. It seems likely that this is a reflection of the initial impact on supply chains from the Russia-Ukraine war where, among other issues, a shortage of wiring looms from Ukraine hit the already embattled German automotive industry.
This is confirmed to some extent by the data for the key sub-sectors with capital goods output falling by -2.6% in the EU and -2.7% in the Euro-zone compared to February, with reductions over the level a year earlier of -2.5% and -2.7% respectively. On three out of these four comparisons, the capital goods group was the weakest of the sub-sectors of industrial production - the exception was the 12 month comparison for the Euro-zone where production of energy fell by -4.0%
Returning to the view by country, we see a wide range of outcomes; on the month-to-month trend, of the 26 Member States who have published their March figures (Cyprus is missing), 14 reported an increase compared to February and 11 had a negative figure although, as well as Germany, the latter group included Spain, Austria and France, while Italy was unchanged.
Compared to a year earlier, 17 Member States had an increase in total industrial production while 9 registered a decline. The strongest increases were in Lithuania (+25.9%), Bulgaria (+19.1%), Poland (+17.4%) and Denmark (+12.2%), while the most significant reductions were in Slovakia (-7.3%), Ireland (-5.5%) and Germany (-4.1%).
It is worth noting that industrial production is dominated by manufacturing but it also includes output of the extraction industries (mining & quarrying) and utilities (supply of electricity, gas & water).
You can download the euro-indicators bulletin from the Eurostat website at https://ec.europa.eu/eurostat/news/euro-indicators (13 May) or request it from MTA.
European Commission Forecast, Spring 2022: The European Commission (EC) has published its latest forecast for the EU and Euro-zone; this includes the outlook for all of the individual Member States, the five candidate countries and 6 other major economies including the UK, USA and Japan.
In short, they expect that the Russia-Ukraine war will exacerbate pre-existing headwinds for most economies and lead to a slower rate of growth. It is important to note, however, that in the core forecast they don’t expect a recession (two consecutive negative quarters of growth) in either the EU or Euro-zone - indeed, there is no negative growth in the quarterly profile at this level. However, a number of individual countries have one negative quarter - usually Q1-22 (this is often already data) or Q2-22 - and five of the countries for which there is a quarterly profile (Denmark, Estonia, Latvia, Lithuania and Slovenia) have a recession in the 2nd and 3rd quarters of 2022 (except for Denmark and Estonia where it is over Q1 and Q2).
There are two alternative scenarios with headline indications which do suggest that there may be a recession across the end of 2022 and/or into 2023 (the quarterly profile for this is not shown so we can’t be certain). In the adverse scenario in which oil and gas prices are 25% higher than in the core forecast, growth is cut by a 1¼ percentage point in 2022 and by ½ a percentage point in 2023. The severe scenario adds in large scale disruptions in gas imports from Russia; this reduces GDP growth by a further 1½ percentage point in 2022 and by around ¾ of a percentage point in 2023. This still leaves a little growth this year and around 1¼% in 2023.
With growth in 2021 slightly above last Autumn’s forecast at +5.4% for both the EU and the Euro-zone, the forecasts have been downgraded for 2022 to +2.7% and to +2.3% in 2023 for both areas. This still represents a reasonable pace of growth taking the economy past its pre-pandemic level this year. However, that faster momentum in the middle of 2021 contributes to the growth rate for 2022 by raising the starting point, thereby creating a slightly misleading strength to the forecast.
At the country level, the forecasts have nearly all been down-graded for 2022 compared to the forecast published last Autumn - the only exceptions are Ireland and Portugal, with the Netherlands unchanged. The extent of the revisions varies however, with the growth rate in Germany, Estonia, Latvia and Slovakia now 3 percentage points lower than it was six months ago. For Germany, this now means a forecast of only +1.6% growth for 2022 although the forecast for 2023 has been moved up to +2.4% (from +1.7%) partly because of the weakness in 2022.
This makes it one of only a few countries where the GDP forecast has been raised for 2023 - Ireland and Portugal are the only others, although it is unchanged (or virtually so) in Austria, Belgium, Cyprus, Luxembourg and the Netherlands.
The EC notes that the main hit to the EU economies - indeed globally - has come from sharp increases in energy commodity prices (mainly oil and gas) which had been rising from their pandemic induced lows before the Ukraine war added to the uncertainty. Other prices have also risen as a result of a combination of the war and renewed Covid-lockdowns in China; these have also been factors in shortages of certain materials and components as well as logistics delays.
There are some positives in the forecasts with employment expected to continue to rise and government deficits falling back after the spending during the pandemic but the risks and uncertainties on the forecast are concentrated on the evolution of the war in Ukraine.
As with GDP, the forecasts for investment have also been cut, but are still positive, with growth of +2.9% in 2022 and +4.4% for 2023 (following a recovery of +9.2% in 2021) being shown for the EU; for the Euro-zone, the rates are +2.7% and +4.3% respectively (having been +9.7% last year).
It is worth noting that the forecasts for GDP growth in the UK have been downgraded from 6 months ago to +3.8% in 2022 before slowing to +1.9% in 2023. For the record, this compares with growth rates of +3.8% and +1.4% respectively in the Oxford Economics forecast presented at our Spring Update Seminar last week.
We don’t have space to go through all of the forecasts in this brief article but you can access all of the documents and details of the European Commission’s forecast from their web-site at https://ec.europa.eu/info/business-economy-euro/economic-performance-and-forecasts/economic-forecasts_en; the latest is the Spring 2022 forecast but this page gives access to previous editions.
European GDP, 1st Quarter 2022: Eurostat has also just released its flash update of the GDP data following the preliminary flash figures released a fortnight ago. The estimate for GDP growth in the Euro-zone has been edged up to +0.3% compared to the previous quarter but the EU figure is unchanged at +0.4%. This is the same rate of growth that the Euro-zone recorded in the previous period (Q4-21) but is a marginal reduction for EU GDP which expanded by +0.5% at the end of last year.
Compared with a year earlier, seasonally adjusted GDP growth in the Euro-zone has been +5.1% with the EU economy growing by +5.2%. Eurostat gives a comparison with the US economy which is reported to have contracted by -0.4% in the 1st quarter of 2022 which leaves it +3.6% larger than a year earlier. For reference, the quarter-on-quarter growth rate for the UK is faster at +0.8% and +8.7% respectively – however, the UK rates are expected to slow sharply in Q2 on both comparisons.
Looking at the data by country, 20 of the EU Member States have published their data for the 1st quarter of 2022; 15 countries saw growth at the start of the year, France and the Netherlands were unchanged at one decimal point and Denmark (-0.1%), Italy (-0.2%) and Sweden (-0.4%) saw their economy contract. However, all of these three countries saw economic growth in the final quarter of 2022, so are not yet in recession.
Of the 4 countries whose economies contracted in the 4th quarter of 2021, Germany and Austria have recorded growth in the latest quarter and have also avoided recession. We don’t yet have the Q1-22 data for the other two countries – Ireland and Croatia – so there is still a chance of a recession being underway in a European country.
You can download the euro-indicators bulletin from the Eurostat website at https://ec.europa.eu/eurostat/news/euro-indicators (17 May) or request it from MTA.