Release date 25 July 2022
Synchronous collapse of leading indicators among developed economies
The economic climate index worsened as expected in July (it fell by 1.7 index point to -1.1) and is now slightly below the long-term average, which reflects the slowdown of economic dynamics, and above all negative expectations of consumers and partly of manufacturing sector regarding business conditions in the coming months. The common denominator of these challenges is the high prices of energy products and raw materials, which reduce the disposable income of households. In manufacturing, the added concern is greater due to the danger of reductions in natural gas flows. In last month, certain challenges also appeared in services, as higher prices increased expectations for lower real consumption of services. The current output in services is still rising well, but the high growth of COVID-19 infections once again raises expectations about the implementation of certain containment measures in autumn months in Europe. Lower values of the consumer confidence (-1.1 p.p.) and confidence in services (-0.5 p.p.) contributed the most to the overall decrease in the economic climate index. In construction and manufacturing, the negative impact was small (-0.1 p.p.), while the indicator in retail trade had a positive impact (+0.1 p.p.). Source: Statistical Office of the Republic of Slovenia
Manufacturing confidence decreased by 1 p.p. and was for 12 p.p. lower than last year. However, compared to the long-term average, it was lower by 1 p.p. The indicators of total orders and expected production deteriorated (by 1 p.p. and by 5 p.p. respectively), while the indicator of stocks of finished products improved by 4 p.p., which means that deliveries are improving, but the picture is worse for orders. However, these data show that the industrial production probably continued to increase in July, as it is influenced to a greater extent by larger inventories than by new orders. Around 37% of companies cited uncertain economic conditions as the main limiting factor in their operations (+10 p.p. more than in July 21), followed by a lack of skilled workers (35%, +5 p.p.) and a lack of raw materials (30%, -1 p.p.). Production capacity utilization was 84.3% (+1.2 p.p. compared to April 2022). Adequacy of production capacities improved by 2 p.p., while new orders decreased by 14 p.p. The assessment of the competitive situation worsened on the domestic market (-4 p.p.) and on the EU markets (-2 p.p.) but improved on markets outside the EU (+3 p.p.), the latter probably due to the fall of the euro against the dollar. Source: Statistical Office of the Republic of Slovenia
More economic topics are below in the attachment.
Composite PMI fell sharply in the USA in July (from 52.3 to 47.5) and was the lowest in the last 26 months. It fell to 47 in services, but less in manufacturing (to 52.3 from 52.7 in June). Services sector recorded a slight increase in new orders, but demand was lower due to high inflation and rising interest rates, which are clearly affecting the slowdown in US consumption growth. Input costs continue to increase; however, their growth was the slowest in the last six months. Sales prices nevertheless increased sharply in July because demand was strong. Job growth continued, but mainly in services. For the second month in a row, the stock of orders decreased. Source: S&P Global
Among other major world economies, composite PMI also fell in Japan (from 53 to 50.6), while it declined less in the United Kingdom (from 53.7 to 52.8). The indicator of current industrial production fell below 50 in both economies, with pessimism more prevalent in services in Japan than in the UK. In Japan, companies highlighted more expensive energy products and semiconductors due to the weakening of the yen against the US dollar. Source: S&P Global
Winter is coming: Energy policy towards Russia; Philippe Martin, Beatrice Weder di Mauro; voxEU; 23 July 2022. Available at: https://voxeu.org/article/winter-coming-energy-policy-towards-russia
Comment/Abstract: This winter will be a major stress test of European unity and solidarity. Exposures to a cut in gas vary hugely across countries. Flanagan et al. (2022) show that Scandinavian countries are practically immune to a cut in gas, while Eastern European countries are highly exposed. Moreover, the extent of output losses will depend crucially on whenever energy markets remain integrated or fragmented. For instance, output losses for Germany in the case of a cut-off are estimated at about -3% in a fragmented case, as opposed to -1% in an integrated case. This winter, solidarity and sharing will have to ‘flow’ in new directions. To get through the winter, common energy buying, saving, and sharing arrangements need to be agreed and tested.
CPI, Slovenia, July 2022, (29 July), Statistical Office of RS; +1.2% m-o-m (+2.7% m-o-m in June 22)
Comment: We expect the CPI Index to rise slower than in previous month, where we see the energy as the key contributor to slowdown in prices. Nevertheless, it is expected the rise in prices to be higher in some categories where it was traditionally very subdued (manufacturing products, communication services).
“When coal came into the picture, it took about 50 or 60 years to displace timber. Then, crude oil was found, and it took 60, 70 years, and then natural gas. So it takes 100 years or more for some new breakthrough in energy to become the dominant source. Most people have difficulty coming to grips with the sheer enormity of energy consumption.”
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