As Europe’s economy strains under sky-high energy prices, energy rationing, and record inflation, purchasing managers indexes which will come out Tuesday will probably add more evidence indicating the 19-nation euro zone is slipping into recession.
As the purchasing managers indexes will come out and likely show private sector output shrinking, it is expected Germany, France, and Italy will release business confidence gauges which will confirm the economy is heading in that direction.
Germany appears to be leading the way down, despite being Europe’s largest economy. Its disproportionately large industrial base has been crippled by skyrocketing energy costs and persistent shortages of supplies. Meanwhile Germany is enjoying none of the benefits to services the Mediterranean countries are enjoying as travel picks back up after the pandemic and tourists head out on vacation.
There will be a second quarter performance update out on Thursday which will reveal whether Germany suffered a real economic contraction, or whether its inconsequential quarterly contraction might actually have been erased by stronger-than-initially-recognized consumer spending.
The data in the coming week will be intensely focused on, after the European Central Bank (ECB) indicated further rate hikes are forthcoming, but offered no guidance on how aggressive the policy path they were contemplating might be. Policymakers raised rates by a half a percentage point in July, and signaled there would be, “further normalization.” However with three weeks left to their next policy meeting, most policymakers have not expressed any preference publicly.
Half of the 25 rate-setters for the ECB will be present at the Kansas City Fed’s annual Economic Policy Symposium in Jackson Hole, Wyoming, and may reveal more then. In the meantime, on Thursday the official account of their last meeting will be released and may give some insight into the thought processes of policymakers.
Christine Lagarde, President of the ECB is on record following the July meeting saying, “We have to bring inflation down to 2% in the medium-term. It’s time to deliver.” After inflation rose to just under 9%, amid widespread expectations that price pressures will only increase as energy cost continue to climb heading toward winter, analysts expect a larger move on the order of a half point.
