Weekly economic highlights: US economy entered a recession, which is purely technical in nature

1.8._2022_Weekly Economic Highlights

Release date 1 August 2022

US economy entered a recession, which is purely technical in nature

On Slovenia's Economy

  • The growth in prices paid by Slovenian households for the purchase of goods and services (CPI) finally started to moderate in July. Monthly inflation was 1%, which was below our expectations (1.2%). In one month, the price of goods rose by 0.5%, and services by 2%, which reflects the transfer of prices of energy products into services. The general level of prices increased the slowest since March 2022 (when they actually even decreased due to the effect of the network fee reduction), and in the preceding three months (April-June 2022) they increased at an average monthly rate of 2.4%. Nevertheless, price growth at the annual level reached a new local record, as they were higher by 11%. The monthly increase in prices was the highest for transport prices (+4.4%), which reflected mainly the increase in fuel prices (50% of total price change or 0.5 p.p.). At the same time, it should be pointed out that fuel prices have already fallen sharply in the last two weeks of July, but the Statistical Office of the Republic of Slovenia includes this in the calculation of inflation with a delay. Much more surprising was the high growth in the prices of recreation and culture (+3.1%), where the price growth in June was already exceptional (+3.7%) and mainly reflects the higher price growth of holiday packages. This item alone contributed to the overall CPI change of 30% (0.3 percentage points). Increases in the prices of services related to personal vehicles (by 6.9%) contributed to the change in CPI by 0.2 p.p. About 0.1 p.p. each was added to CPI by more expensive solid fuels (by 14.1%), services in restaurants and hotels (by 1.1%), cars (by 1%), and housing and household equipment and ongoing maintenance of apartments (by 0.8%). All remaining increases contributed 0.3 p.p. Due to the summer seasonal sales, the prices of clothing and footwear in July were 8.2% lower than the previous month, which reduced the monthly inflation by 0.6%. CPI was lower by 0.1 p.p. by cheaper fruit (by 4%). Source: Statistical Office of the Republic of Slovenia

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On World Economy

  • US GDP shrank by 0.9% on an annualized rate in Q2 (this is not comparable to the year-over-year change as we know it in Europe), while it was down 1.6% in Q1. The drop was the result of reduced inventories (mainly at general department stores and motor vehicle dealers), investment in housing construction, lower federal and state consumption (lower needs due to the end of pandemic). Lower stocks had an impact of as much as 2 p.p. on lower GDP (than it would otherwise be), and housing investments for 0.7 p.p. in addition. Analysts had expected growth of 0.4% of GDP. On the other hand, household consumption increased, as did exports, which are actually key components of quality economic growth. In terms of exports, growth was highest for industrial goods and raw materials (oil derivatives and gas), as well as food, feed and beverages. In services, the growth of travel exports was high, which means higher consumption by foreign tourists in the USA. On the import side, the growth in travel imports stood out, which means more spending by US citizens abroad, which was the result of both increased travel and air traffic and a strong dollar, which increases the purchasing power of Americans. Within household consumption, purchases of goods fell, while spending on services increased, especially in tourism, healthcare and transport services. Business investments remained unchanged in real terms, which reflects the hesitancy of the private sector regarding investments. As a result, we can conclude that the fall in GDP was of a statistical nature and that the USA did enter a recession (two consecutive reductions in GDP), but this is of a purely technical nature, as employment increased further and the qualitative components of GDP increased. In the Q3, we can expect around 2% growth in the US, already based on current data for the month of July and some leading indicators. The US economy was 2.5% larger in real terms in Q2 than in the quarter before the outbreak of the pandemic (Q4 2019). Source: U.S. Department of Commerce

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Must Read of the Week

  • Europe needs energy solidarity — not a North-South rift; Simone Tagliapietra; Politico; 26 July 2022. Available at: https://www.politico.eu/article/europe-needs-energy-solidarity-not-north-south-rift/

Comment/Abstract:  Author claims that the bloc needs to establish a compensation mechanism aimed at providing fair payments for EU gas supply and demand options made available by certain countries to the most vulnerable ones.

Forecast of the Week

  • Exports of goods, Slovenia, June 2022, (4 August), Statistical Office of RS; EUR 4.2 bn (+2.7% m-o-m in June 22)

Comment: We expect the growth in exports of goods to slow down (+50% in May y-o-y; +27% I-V 2022 y-o-y) reflecting slower real growth of exported industrial goods. We could nevertheless be surprised by resilient trade flows that affect imports and exports but do not provide much value added for Slovenian economy (e. g. coal, crude oil etc.).         


Quote of the Week

“The world is not dangerous because of those who do harm but because of those who look at it without doing anything.”

(Albert Einstein)

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