Economy in Brief: 2022

Consumer climate on the GfK measure for Germany, a forward-looking estimate for confidence in October, shows a drop to -42.5, a new low in the series that dates to early-2002. GfK confidence has been dropping sharply and consistently from -27.7 in July to -30.9 in August to -36.8 in September and finally to -42.5 in October. This deterioration is coming in the face of ECB rate hikes, stubborn high inflation, threatened energy supplies, and the ongoing war between Russia and Ukraine. The recent drop reflects a more complete reaction to the shutting of the energy flow through the Russian Nord Stream pipeline. However, there may be even worse pipeline news ahead. A day ago, an undersea rupture in the pipeline that is being called an act of sabotage or terrorism, has created an undersea leak that may more thoroughly cripple the pipeline and nullify its capabilities for some time to come.

The components of the GfK index are released with a lag of one month. GfK reports values for September as the most up-to-date readings for components. Economic confidence fell in September to -21.9 from -17.6 in August. It was a strong as -11.7 in June.

Income expectations weakened even more sharply, falling to -67.7 in September from -45.3 in August. This reading had been as strong as -33.5 in June.

The consumer's propensity to buy reading also fell in September to -19.5 from -15.7 in August. Its June value was -13.7. The slippage on the buying gauge has been much more measured than for other GfK components.

Standings among components The economic gauge stands in its 6.4 percentile. Income expectations are at their all-time low on data back to January 2002. The propensity to buy reading is down to its 17.7 percentile standing, the highest standing of the lot, but still an exceptionally low reading that has been lower historically less than one-fifth of the time.

Successive new lows for GfK The last six monthly headline GfK values have set successive new lows in for that index. Clearly, this is a period of severe confidence weakness on data back to 2002 – a period that contains the Great Recession as well as the brief but sharp negative impact from Covid.

Elsewhere in Europe Germany is not alone in this weakness. Confidence gauges for Italy, France and the U.K. also weaken in the most recent month- that reflects data up to date though September. In Italy, the confidence index fell to 94.8 from 98.3 in August. In France, confidence fell in September to 79.1 from 81.9 in August. The U.K. index fell to -49 in September from -44.0 in August. Evaluated on the same timeline as the German GfK headline back to 2002, the Italian reading stands at its 18.1-percentile, the French reading is at its 0.4-percentile, while the U.K. measure is at a new low on this timeline.

Nominal money growth is slowing in global money center areas except for the EMU. U.S. nominal money growth has decelerated to a three-month 0.5% annual rate from 4.1% over one year and 8.8% over two years- a sharp pull back. In the U.K., money growth has decelerated to a three-month pace of 3.6% from 4.7% over 12 months and 5.4% over two years. In Japan, money growth that has been better-controlled; it pitches a 3.9% pace over three months compared to 3.4% over 12 months and 4% over two years- more or less steady growth.

By comparison in the EMU, three-month nominal money growth has accelerated to an 8.7% pace from 6.6% over 12 months and 7.2% over two years. These are clear accelerations to the strongest three-month money growth in this grouping- adding that distinction to the strongest six-month pace and the strongest 12-month pace.

The ECB has been a late comer to the monetary tightening parade. Of course, this is a parade Japan has yet to join – but for good reason, its inflation remains moderate. Europe faces unique and significant challenges to its outlook with the energy pipeline from Russia having been damped and then shut- as Russia complains that economic sanctions prevent the shipment of needed equipment to keep the pipeline running.

Credit in the EMU mirrors money growth rates. Private credit is up by 6.6% over 12 months, up at a 7.0% pace over six months and up at a 7.5% annual rate over three months.

Real flows Real money supply has slowed everywhere although less definitively in Japan. EMU money growth is at a 1.1% pace over two years, it then contracts at a 2.3% pace over 12 months, at a 3.7% pace of contraction over six months. Over three months EMU money growth has ticked up to a 0.2% annual rate. Real private credit growth in the EMU shows a drop at 1.4% pace over two years, a drop at a 2.3% pace over 12 months, a drop at a 2.9% pace over six months, and then a lesser pace of decline of 1.0% over three months.

Inflation and growth trends Real money growth in the U.S., the U.K. and Japan show clear decelerations from two-year to one-year with the U.S. and the U.K. both logging money growth declines over 12 months at -3.8% in the U.S. and -3.9% in the U.K. Over six months, the U.S., the U.K., and Japan all log declines in money growth as well as growth decelerations. Over three months growth rates for real balances decline at a lesser pace than over six months in all three countries, but in the U.S. and the U.K. the three-month pace of decline is still a more substantial decline than the pace over 12 months. In Japan, the three-month growth in money is only 0.7%, but that is the strongest on these horizons since the two-year pace of 2.8%.