European Industrial Production, December 2022: Following the UK data which we reported last week, Eurostat released the industrial production data for the EU; their report has a monthly beat with no easy way of determining the quarterly figures.
Total industrial production in the EU was -0.4% compared with both November 2022 and December 2021; for 2022 as a whole, total industrial production was +1.9% higher than in 2021. For the sub-set of the Euro-zone, there was a month-on-month fall of -1.1% which meant that December was -1.7% lower than a year earlier, although there was an increase of +0.9% when comparing 2022 with 2021.
Looking at the capital goods industries – where most of our members customers will be classified – output in the EU was -0.3% lower than in November 2022 but was +1.7% higher than in December 2021. On the same basis, output of the capital goods industries in the Euro-zone fell by -0.4% over the previous month but were unchanged on a year earlier. The Eurostat report does not provide full year comparisons either for industries or countries.
By country, we will focus only on the comparisons with December 2021; on this basis, among the 26 Member States who have published the data (Cyprus is missing as usual), total industrial production increased in 12 and fell in 14. The largest increases were in Denmark (+26.1%) and Malta (+17.1%), with the greatest reductions in Slovakia (-13.1%) and Estonia (-11.5%).
You can get the full details from the Eurostat News Release which can be downloaded from their web-site at https://ec.europa.eu/eurostat/news/euro-indicators (15 February) or requested from MTA.
European GDP, 4th Quarter 2022: In an update to its preliminary publication a couple of weeks ago, Eurostat has left its estimate of European GDP unchanged; Compared to the 3rd quarter, it has GDP for the EU flat, with growth of +0.1% for the Euro-zone. The annual data for 2022 is also unchanged with growth of +3.6% in the EU and +3.5% for the Euro-zone. Note that the equivalent figures for the UK are no change for the quarter-on-quarter trend and +4.0% for 2022.
We now have data for more countries which reveals that while the EU overall has avoided a recession – for now at least – some of the individual countries have recorded two consecutive quarters of negative growth (the standard definition of a recession for individual countries) across Q3 and Q4. These are the Czech Republic, Finland and Hungary, with Estonia and Greece yet to publish their Q4 figures having had a negative Q3 – in the case of Estonia, they had negative growth in both Q2 and Q3, so are already in recession.
A handful of other countries also saw GDP contract in the final period of 2022, including Austria (-0.7%), Germany (-0.2%), Italy (-0.1%), Lithuania (-1.7%) and Poland (-2.4%) and so at risk of being in recession in Q1-23. For the quarter-on-quarter trend, the strongest growth was in Ireland (+3.5%) although this is distorted by international flows of funds with a number of large companies having European headquarters there. Other than this, the strongest growth was in Cyprus and Romania (both +1.1%).
As with the industrial production data, Eurostat doesn’t publish full year figures for the individual counties but comparing Q4-22 with a year earlier, only Lithuania (-0.4%) and Sweden (-0.6%) ended the year below the level of the 4th quarter of 2021.
You can get the full details from the Eurostat News Release which can be downloaded from their website at https://ec.europa.eu/eurostat/news/euro-indicators (14 February) or requested from MTA.
European Commission Interim Economic Forecast: The European Commission (EC) publishes a full economic forecast twice per year (November and May) with interim updates in between. Their latest projections show a slightly higher figure for economic growth in 2022 (the full year data had not been published in time to include in the forecasts) and an uprating of expectations for 2023, although this still represents slower growth than was recorded in 2022.
For the EU as a whole, they now expect GDP growth of +3.5% in 2022 (was +3.3% in the Autumn forecast), with growth predicted to be just +0.8% in 2023 (+0.3% previously); for the Euro-zone, the new forecasts are +3.5% and +0.9% respectively. The medium-term projections for 2024 are unchanged from the Autumn forecast at +1.6% for the EU and +1.5% for the Euro-zone.
The revisions to the forecast for 2023 are largely under-pinned by expectations of lower inflation this year, arising mainly from lower energy prices. The Commission notes that the benchmark price has fallen below its pre-war level thanks to a sharp fall in consumption and continued diversification of sources.
At the country level, GDP growth is expected to be less than +1% in 2023 in most countries, with Ireland (which has been an outlier for some time thanks to its role as a European base for multi-national companies) the most notable exception. Among the major economies, Spain is the only one with growth above this rate (at +1.4%); in part this is because it has seen a sharp fall in energy prices and the way in which the government has implemented support for consumers.
As the largest economy in the EU, it is worth noting that Germany is expected to see a further quarter-on-quarter contraction in GDP in the first quarter but thanks to a recovery later in 2023, it is forecast to remain in positive territory at +0.2% for the year. However, this is one of the slowest growth rates and makes a significant contribution to EU/Euro-zone averages.
The only EU country in which GDP is forecast to contract for 2023 as a whole is Sweden where household consumption is expected to take a significant hit and for the contraction to continue into the 2nd quarter.
The Commission’s report suggests that the risks are broadly balanced. Uncertainty remains high, thanks in no small measure to the war in Ukraine, although this has eased recently. The threat of gas shortages has receded, at least for this winter, although the re-opening in China may lead to increased global demand for LNG supplies. There is also a downside risk from rising interest rates and the adjustment of consumers and corporations to this new environment.
On the other side of the equation, the report points to upside ricks emerging and they suggest that the resilient labour market means that domestic demand could be stronger than forecast, despite rising interest rates. The re-opening of the Chinese economy also has an upside risk through the easing of supply chain problems and a boost to external demand.
Unlike the main forecasts, this update only covers the EU members states, so we don’t get any update on their views for the UK economy. In the recent Bank of England forecasts, for example, the UK was the only G7 country where a fall in GDP is predicted for this year.
This note can, inevitably, only be a high-level summary – the full report runs to 62 pages including the statistical appendix so we would recommend taking a look at the full forecast. You can access these on the European Commission’s web-site at https://economy-finance.ec.europa.eu/economic-forecast-and-surveys/economic-forecasts_en (select Winter 2023).