Italy in recession, German economy slowing down.
There was absolutely no good reason to expect a strong Italian GDP reading today. However, most monthly indicators – both hard and sentiment data – had pointed towards a slight increase in Q2. The outcome was a sobering -0.2% q/q (after -0.1% q/q in Q1). Weakness was broadly based: According to the statistical office ISTAT, output declined in all three sectors (industry, services, agriculture). No further details were published today. What is striking in any case, is the contrast to Spain, where GDP increased by 0.6% q/q in Q2 and by 0.4% in Q1.
Looking forward, it’s hard to imagine that Italy will be exempt from global geopolitical headwinds. As there is no dynamic on the domestic side either, the third-largest Euro-area economy will stagnate this year at the very best. Hardly necessary to mention that this will increase the pressure on the ECB to do more. More stimulus is unlikely to happen soon, though. One can also expect more calls for an end to austerity-minded fiscal policy.
German order data: Volatility and a weaker trend
In the German manufacturing sector a weaker trend got confirmed by today’s order data for June. It was the strongest drop in manufacturing order intake (-3.2% m/m) since autumn 2011, mainly driven by capital goods order intake from the Euro area declining by 19.5% over the month. This comes after a 15.7% m/m increase in May. In June, companies reported an unusually low number of big tickets. Total orders excluding the volatile component “other transport equipment” (aircrafts, ships etc.) were up 1.4% m/m in May. While a normalization of these orders can easily happen over the summer, the weaker trend is obvious in the numbers. It’s probably fair to assume that heightened geopolitical risk pushed some companies to adopt a wait-and-see has attitude.
During the second quarter, orders declined by 0.6% q/q (domestic -1.1%; foreign -0.1%). Combined with softer indications from Ifo and PMI surveys, one shouldn’t expect too much progress in manufacturing production for Q3. This would come on top of a soft second quarter. GDP data for Germany and the Euro area will be published on 14 August.
Nordea