Regional Differences in European GDP TrendsFebruary 01, 2023
On Monday, Germany’s GDP print for the final quarter of 2022 came out below expectations of 0.0% by -0.2%. This negative (rather than stagnant) figure makes the -0.5% print forecast for Q1 2023 a more foreboding prediction for Germany’s economy.
France’s expected GDP for Q4 was similarly 0.0%, but yesterday, unlike Germany, France beat expectations by 0.1%. For the Eurozone Aggregate, a beat by 0.2% over the survey median of -0.1% showed an expansion across the continent. Both the French and Eurozone GDP beating expectations and coming in positive helped to ameliorate recession fears across Europe that were intensified by Germany’s disappointing number two days ago.
Why the difference? German “soft-data” – like news about the mild winter – has been rosy of late. I see this GDP number as a reconciliation to the hard data. While energy subsidies and the weather certainly worked in their favor, Germany is the largest manufacturing economy in Europe, and there is simply no getting around the fact that this makes them more susceptible to energy prices.
While the price of natural gas in Europe declined over the quarter, perhaps a lag in the effect of these prices on manufacturing could explain some of the negative growth.
Private consumption was forecast to bolster GDP in Germany, but according to Destatis, this won’t be the case. We do not yet have a GDP by component from Destatis, but they did note with the headline release that private consumer spending was a “key driver” of contraction for the quarter. We got further evidence of this yesterday in the retail sales figure, which fell off a -5.3% month-over-month cliff in December.
France’s economy, on the other hand, grew in Q4. Household consumption was negative, likely due to the same price pressures affecting personal consumption in Germany, but France’s economy was bolstered by other factors. Both exports and imports shrank from the quarter prior, but the export/import ratio (Δ YoY Exports/Δ YoY Imports) grew significantly. In Q3, year-over-year exports grew about 55% compared to import growth. In Q4 that percentage increased to 69%.
Germany’s forecast export/import ratio (Δ YoY Exports/Δ YoY Imports) went in the other direction. While their year-over-year imports and exports both shrank from Q3 as well, their exports shrank much more than their imports compared to a year ago. Year-over-year exports grew by about 59% compared to import growth in Q3, but this percentage shrank to just 46% in Q4.
Germany always imports a far greater amount of energy than its neighbor to the southwest because it’s a more manufacturing-based economy that is still suffering supply chain problems in auto manufacturing. Regional differences, especially in trade, are becoming more important than ever in considering European economies.