Economy in Brief

Finland sent 2021 out in style as its 3.1% gain in industrial output in December demonstrates. The gain is part of a series of indicators that now stretches back for six months. Output in Finland is gaining at a 17.3% annual rate over three months, part of an ongoing acceleration from 12-months to six-months to three-months. Utilities and manufacturing also follow this patten of sequential acceleration.

Mining and quarrying output is super-heated but not accelerating since its pace of 84.5% over six months is well ahead of its extremely strong pace of 44.2% over three months. Food production slowed over six months but growth in food output over three months is much stronger than over 12 months. And textile output has simply been gaining pace steadily from 12-months to six-months to three-months.

In December, all sectors and industries showed not just solid but strong gains. By comparison, November and October were a bit more uneven in their span of results.

Inflation has run hot in Finland as it has elsewhere in the EMU. Headline HICP inflation has asserted itself, rising from a 3.2% pace over 12 months and six months to 5.0% over three months. Core inflation has ridden up from 1.9% over 12 months to 2% over six months to 3.1% over three months. Compared to the EMU, Finland's trends are muted. Moreover, in December despite the heat in output from industrial production, inflation has cooled in with the headline dropping by 0.2% month-to-month and the core rising by just 0.1%. Finland's results are what the ECB and the Federal Reserve want desperately to see in their macro data. But the U.S. data for January show inflation acceleration. Finland is a special case.

Growth in the just-completed fourth quarter was strong at 11.2% for overall IP; all sectors were strong except for food where production slipped at a 0.8% annualized rate in the fourth quarter.

The chart at the top of this report shows the level of IP in Finland and how it has performed. The table calculates January 2020 to date data on performance. The ratios in the table show that IP has gained sharply since just before Covid struck (except for mining and quarrying). And the chart affirms the strength in the output rebound. Finland looks to have completely recovered (even relative to trend!) from the Covid smackdown. However, output is still undershooting relative to its previous trend because Finland was hard hit in 2019 when there was a global trade slowdown in the wake of the Trump tariffs on China. Finland still is not back from that set-back. But it is doing well, and it seems to have put the economic impact of Covid behind it despite ongoing infections.

Italian IP was set back in December, shedding about half its gain from November that was itself a rebound from a decline in October. The headline for IP now shows an erratic recent pattern across months and sequential growth rates over 12 months to six months to three months that show steady deceleration. Moreover, the decelerating patterns permeate the three main sectors of IP: consumer products, capital goods and intermediate goods. Italy's slowdown is broad-based across manufacturing (although the transportation sector bucks the trend on strong growth in output over the last three-months- both for three months on balance as well as for each of those three months).

The chart lays out a slightly different path and shows how Covid has dominated the recent behavior in IP, crushing it in April 2020 and then that deep depression in the timeseries laid the groundwork for the spike in April 2021. Emerging from all these distortions, IP has since settled down. IP, often a volatile series in the best of times, has logged increases month-to-month in eight of the last 13 months with one month showing no change in output. That puts the monthly expansion contraction ratio at 2:1. Over that stretch, the average monthly percentage change in output has been 0.4% which is quite good since IP data are expressed in real terms.

However, three of those monthly drops have come in the last five months as well as one month of unchanged output. There has been only once increase in five months, in November. In fact, November saw the first increase in output since June 2021. Clearly momentum is authentically being lost.

In the quarter-to-date (QTD – which is now a completed Q4 reading), output is falling for the headline and for all sectors except consumer goods. The consumer goods rebound may reflect catch up more than strength; consumer goods and capital goods are the only major sectors with output in January 2022 still lower than it was in January 2020. However, the consumer goods sector has been strong. Consumer goods is the only sector that despite slowing sequentially logs no negative results and posts the strongest gain of any sector over six months and 12 months as well as over three months.

Assessing output growth over 12 months using historic results back to January 2000, year-on-year manufacturing trends rank strongly. The headline is at 83.7% and consumer goods stand at their 97.3 percentile. Capital goods, at their 51.1 percentile, are barely above their historic median (that occurs at a 50% ranking). Intermediate goods stand at their 70.5 percentile. Manufacturing growth is doing well over 12 months, but it is decelerating.

These ratings on actual output reinforce the message from surveys on industry and business in Italy for the same span. The EU industrial confidence reading has been higher on this timeline less than 3% of the time. Current orders for Istat have been stronger less than one-half of one percent of the time. The Istat outlook has been stronger only about 15% of the time. Surveys reinforce the current IP readings on strength.

The three indicators at the table bottom show very strong gains over 12 months but revert to much smaller gains over six months and three months. That is not surprising since these rankings presented here are for these indicators as levels and levels have not changed very much over three months or six months. The surveys show levels about as high as they have ever been (see rankings), a least for two series. It is natural that when a diffusion survey approaches such a height its gains slow.

The message here is that Italian industry still has strong output and confidence, but that momentum has been ebbing. There is no pessimism here. There may still be lingering concern about what the virus will allow going forward, but sector diagnostics remain upbeat.