German households have evidently been reining-in spending recently after rising oil and food prices pushed inflation to the highest in 12 years last month. Economic growth in Germany is slowing as the global expansion ebbs and the euro's rise to a record crimps exports.
Germany's IWH institute, which helps provide twice-yearly reports for the government, on Dec. 20 cut its growth forecast for 2008 to 1.7 percent from 2.5 percent. In 2007, the economy probably expanded 2.5 percent, Halle-based IWH said.
German consumer prices, measured using a harmonized European Union method, rose 3.3 percent in November from a year ago. That's the most since the data were first compiled in January 1996.
Retailers' gross margins showed the sharpest decline since January 2006, with a gauge falling to 39.4 from 42.5 in November, according to NTC economics who prepare the retail sales index. The indicator measuring the average prices of goods purchased for resale increased to 70.4 from 69.9 in November.
In December, retailers also failed to meet their sales targets, with a gauge which measures this rising slightly to 38.5 from 37.2 in November according to the report. Companies also expect sales to miss projections in early 2008. An indicator measuring future sales dropped to the lowest in a year.
``Consumer confidence remained low despite increased marketing efforts by retailers,'' NTC said in its analysis. ``Worries about a wider economic slowdown and uncertainty in the financial markets heading into the New Year were highlighted.''
In fact while sales, as I said, fell across the zone, retailers in Germany suffered the biggest decline, but sales also dropped in France for a third month, putting the index at 49.1, while a Italian sales dropped to 44.7 from 45.3.
Euro zone purchasing managers surveys for the manufacturing sector also tend to confirm the idea that the economy of most member states has slowed is likely to have slowed in the fourth quarter despite what seem to be pockets of resistance in some countries.
The purchasing managers index for the euro zone manufacturing sector eased to a final 52.6 in December from 52.8 in November. The December figure was revised up slightly from the provisional reading of 52.5. The manufacturing PMI for the whole zone has managed to remain above the October low of 51.5, but the December reading is still the second weakest figure since Aug 2005.The German PMI eased slightly but held up better than expected, slipping to 53.6 from 53.7 against market expectations for a decline to 53.2.
And Yet France Resists!
However not all the news coming out of France in recent days has been negative. In the third quarter of 2007 French Gross Domestic Product (GDP) grew by 0.8% according to revised estimates from the French statistics office Insee published this week. One of the strong points in this data was the performance of domestic consumption, with household expenditure rising by 0.8% ( following +0.6% in the second quarter of 2007), and thus contributing +0.4 point to GDP growth. General government expenditure slowed from a 0.5% y-o-y rate in Q2 to 0.4% and contributed +0.1 point to Q3 GDP growth.
Total Gross Fixed Capital Formation (GFCF) grew at an annual 0.6% (+0.4% in the previous quarter). The GFCF of households grew by 0.6%. In total GFCF contributed +0.2 point to GDP growth. Exports growth increased (+1.5% after +0.7% in the previous quarter), whereas imports grew more slowly, by 1.0% (after 1.8% growth in Q2), so that net foreign trade contributed +0.1 point to GDP growth (after being a -0.3 points drag in Q2). Inventory changes did not contribute to GDP growth (after +0.1 point in the preceding quarter).
Euro zone purchasing managers surveys for the manufacturing sector also tend to confirm the idea that the economy of most member states has slowed is likely to have slowed in the fourth quarter despite what seem to be pockets of resistance in some countries.
The purchasing managers index for the euro zone manufacturing sector eased to a final 52.6 in December from 52.8 in November. The December figure was revised up slightly from the provisional reading of 52.5. The manufacturing PMI for the whole zone has managed to remain above the October low of 51.5, but the December reading is still the second weakest figure since Aug 2005.
As suggested above, country level PMI surveys are giving the impression that national growth disparities within the euro area may be widening. France, for example, continues to resist the general downward trend in manufacturing with the French manufacturing PMI staging a small rally and climbing to 53.8 in December from 52.5 in November.
Nonetheless Q4 may not be so positive as the third quarter was. As already noted, retail sales dropped in France in Novermber for the third month in succession according to the PMI, with the December index oming in at 49.1,
However consumer confidence in France unexpectedly dropped to a 19-month low in December in France. Consumer sentiment fell to minus 29 from minus 28 in November,according to Insee, the Paris-based national statistics office. The December reading is the lowest since May 2006.
But Italy Goes From Bad to Worse
Italian retail sales declined for a 10th successive month in December as a bleaker economic outlook damped consumer demand during what should have been the busiest shopping period of the year. The seasonally adjusted purchasing managers index of retail sales dropped to 44.7 from 45.3 in November. The reading has now been below 50, the level that signals a contraction in sales, since February. Even record low unemployment of 7.2 percent has failed to spur purchases, prompting retailers to expect lower sales next month.
The Italian manufacturing PMI also fell more than expected, declining to 50.7 from 51.3 (a level at which industry is just expanding, but only just), compared with expectations for a decline to 51.0. This meant the index was at its lowest level for more than two years.
And the Spanish manufacturing PMI fell to 49.5 from 50.7, dropping below the critical 50 dividing line between expansion and contraction (see this post for more details).
And while the German PMI showed some resistance in December, it has fallen a long way in recent months and has now gone below the French index for the first time since Sept 2005. The softening of overall euro zone growth is likely to prompt the European Central Bank to keep its main interest rate unchanged at 4.00 pct for some time to come, but inflation worries mean that interest rate reductions are not likely to come soon.
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