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Kamil Kovar @crisisstudent.bsky.social · 10/03/2025

Overall, I consider the Q4 final GDP report as good as it could be – both relative to the preliminary data and relative to the expectations at the end of 2024. Alas, we all know that this is quickly becoming old news with the incoming tariffs and boatload of uncertainty… 9/9

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Kamil Kovar @crisisstudent.bsky.social · 10/03/2025

The problem is that the decline in net exports in last two quarters was much more about decline in exports than increase in imports. In other words, there is a good reason to expect further declines in net exports. 8/

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Kamil Kovar @crisisstudent.bsky.social · 10/03/2025

That leaves net exports as the only true negative part of the release. We know net exports will drag on growth given their bounce in mid-2022 to 2023, which to a large degree was about drop in imports – after all imports were likely to bounce back at least a bit. 7/

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Kamil Kovar @crisisstudent.bsky.social · 10/03/2025

So what about those inventories, then? First, we knew they the Q3 boost will not come again, so weakness was expected. Second, inventories went further away from normal, so they will likely add in future quarters. x.com/CrisisStuden... 6/

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Kamil Kovar @crisisstudent.bsky.social · 10/03/2025

Again, looking across countries the same story holds. We got at least some consumption growth everywhere – and that was on top of strong Q3. And we got strong growth in fixed investment everywhere but France (alas for investment it is bounce back from previous quarter). 5/

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Kamil Kovar @crisisstudent.bsky.social · 10/03/2025

And even better, all the components of final domestic demand have expanded, including fixed investment - where we saw expansion for the first time in a long while. 4/

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Kamil Kovar @crisisstudent.bsky.social · 10/03/2025

Importantly, this story is geographically broad-based: All the major economies saw solid increases in final domestic demand, including Germany and France (0.23% and 0.22%). 3/

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Kamil Kovar @crisisstudent.bsky.social · 10/03/2025

Why does this matter? Well, starting in late September there was a chorus of worries about economic growth in eurozone. We now know that this was mostly misplaced: in absence of Trump eurozone was on its way to recovery. 2/

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Kamil Kovar @crisisstudent.bsky.social · 10/03/2025

How bad was the Q4 in euro zone? Actually, in my opinion it was great. My preferred measure it was the best quarter in two years: Final domestic demand grew at very strong 0.53%. In other words, the relatively subdued headline growth comes solely from net exports and inventories. 1/

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Kamil Kovar @crisisstudent.bsky.social · 13/02/2025

So overall, very bad end to disappointing year. Rather than the expected bottoming out of production we got another leg down – and with Trump in White House, this might be a (noisy) beginning of yet another contraction. 6/

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Kamil Kovar @crisisstudent.bsky.social · 13/02/2025

So why do I say that the overall number is more ugly than reality? One reason, really: drop in transport production drove a lot of the decline, and this is unlikely more than monthly noise to be reversed next year. (That said, similar thing in reverse applies to jump in pharma production). 5/

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Kamil Kovar @crisisstudent.bsky.social · 13/02/2025

Looking at individual industries brought further disappointment. For example, chemicals production seems to be on downward trend again now that gas prices are at 50euro per MWH. 4/

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Kamil Kovar @crisisstudent.bsky.social · 13/02/2025

It was also not concentrated in one or two industries, with median industry seeing large decline in December and at 2digit detail most industries saw decline. 3/

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Kamil Kovar @crisisstudent.bsky.social · 13/02/2025

Unlike some previous months, this time around the drop was not about Ireland and Germany. Indeed, the jump in Ireland mostly offset drop in Germany, so excluding both meant decline of -1.5% 2/

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Kamil Kovar @crisisstudent.bsky.social · 13/02/2025

Ugly, even if not as ugly as the headline number suggests. That was the #eurozone industrial production release for December, which showed 1.1% decline on the month. 1/

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Kamil Kovar @crisisstudent.bsky.social · 30/01/2025

As a result, based on the available data we believe that the final domestic demand had an ok quarter – not as good as Q3, but better than Q1 and Q2. So in our mind, the recovery is intact – albeit disappointing one. 5/

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Kamil Kovar @crisisstudent.bsky.social · 30/01/2025

That said, under the hood the numbers were more positive. While consumption probably saw subdued growth, investment likely added to growth for the first time in more than a year. Instead, it was net exports which likely dragged on growth – with France and Spain showing as much. 4/

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Kamil Kovar @crisisstudent.bsky.social · 30/01/2025

In other words, if it wasn’t for the strong growth in Spain and stellar in Portugal, we would get a contraction in euro zone GDP. This is not a good picture. 3/

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Kamil Kovar @crisisstudent.bsky.social · 30/01/2025

Instead of the headline number, it was the geographical composition of growth which was most negative news in the report: There was little if any growth to be found outside of Iberian Peninsula. Germany and France saw small contractions, Italy, Austria and Belgium stagnation. 2/

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Kamil Kovar @crisisstudent.bsky.social · 30/01/2025

#Eurozone #GDP numbers brought a negative surprise, but its was not a big one. On our preferred metric, eurozone excluding Ireland, we got 0.07% increase, small difference from the 0.18% expectation from early January. 1/

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Kamil Kovar @crisisstudent.bsky.social · 17/01/2025

Overall, I think that Q1 will bring some upside inflation surprises relative to the consensus. Luckily for doves, this won’t change the outcome of January and March meetings. But I am increasingly more convinced that April will be a skip. 11/

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Kamil Kovar @crisisstudent.bsky.social · 17/01/2025

Here we are in for further unpleasant numbers in Q1. For example, the decline in German gas prices is for now over, which is not a good sign at all. 10/

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Kamil Kovar @crisisstudent.bsky.social · 17/01/2025

Finally, energy prices confirmed our expectations that the large increase was not only about fuel prices, but reflected higher gas and electricity prices. 9/

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Kamil Kovar @crisisstudent.bsky.social · 17/01/2025

The worst news in food prices is that the pass-through from higher feed prices into higher animal product prices is still not over. 8/

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Kamil Kovar @crisisstudent.bsky.social · 17/01/2025

Otherwise, the same cross currents are still present. There hasn’t been any slowdown in coffee and tea prices yet, and while olive oil prices are dropping quickly, butter is doing its best to compensate. 7/

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Kamil Kovar @crisisstudent.bsky.social · 17/01/2025

The most interesting news was in food, and it wasn’t positive. The monthly increase was flattered by large drop in vegetable prices, that subtracted 0.15% from the 0.04% overall increase. 6/

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Kamil Kovar @crisisstudent.bsky.social · 17/01/2025

Meanwhile, core goods had a good month, which can be seen in the distribution of changes. There were some one offs, mainly in clothing, but also some goods news, such as renewed decline in household appliances. 5/

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Kamil Kovar @crisisstudent.bsky.social · 17/01/2025

Overall, the distribution of service prices is slowly moving away from the extreme to more moderate price increases – but the battle is far from concluded, with most categories now in the 2-4% range. We need more progress next year to keep inflation close to 2%. 4/

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Kamil Kovar @crisisstudent.bsky.social · 17/01/2025

But it was made worse by jump in airline ticket prices, almost offsetting the drop in packaged holidays. 3/

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Kamil Kovar @crisisstudent.bsky.social · 17/01/2025

In services there were countervailing forces. The number was flattered by drop in packaged holidays, which won’t repeat next month, as it reflects changes seasonal patterns. 2/

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Kamil Kovar @crisisstudent.bsky.social · 17/01/2025

The final data on #eurozone #inflation did not provide much new arguments for hawks of doves. It definitively wasn’t a good month, but neither was it a terrible month. 1/

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Kamil Kovar @crisisstudent.bsky.social · 15/01/2025

And if you look on distribution of changes then the median sector saw an increase in production for second month in a row. 4/4

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Kamil Kovar @crisisstudent.bsky.social · 15/01/2025

The increase was pretty broad-based, even though two sectors were outliers. 3/

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Kamil Kovar @crisisstudent.bsky.social · 15/01/2025

This was coupled with small upward revision to October values, so that the drag from production for Q4 should be mild. 2/

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Kamil Kovar @crisisstudent.bsky.social · 15/01/2025

This was a pretty good month for #eurozone #industrial #production. 0.2% increase for eurozone aggregate, and bigger jump of 0.7% when excluding Ireland. 1/

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Kamil Kovar @crisisstudent.bsky.social · 08/01/2025

As for Spain specifically, we do have it declining 9ish, so not all the way to 2008 values.

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Kamil Kovar @crisisstudent.bsky.social · 08/01/2025

Yeah, I think I do say that 2008 is a problematic benchmark. But equally is 2008 problematic benchmark for Germany. Which really was my main argument: people are using history as if it is reliable benchmark, which it is not. In effect I am turning the weapon back on people.

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Kamil Kovar @crisisstudent.bsky.social · 08/01/2025

Or to put it differently: If you would take the minimum unemployment rate for each country this century, then you would get euro zone unemployment rate of 5.2%. I don’t think we have seen the bottom of this series yet.

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Kamil Kovar @crisisstudent.bsky.social · 08/01/2025

P.S.: This chart actually nicely highlights why I think there is scope for unemployment rate to decrease even further: Spain could still see a decline in unemployment rate, driving the average lower by another 0.2-0.4pp.

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Kamil Kovar @crisisstudent.bsky.social · 08/01/2025

Or put differently: for the first time in decades all the euro zone country labour markets have favorable structural and cyclical status at the same time! This alone explains the low 15/

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Kamil Kovar @crisisstudent.bsky.social · 08/01/2025

The conclusion? The record-low unemployment does not mean tight labour market. It is just an illusion caused by the simple fact that at any point before at least one major country had structurally or cyclically bad labour market. 14/

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Kamil Kovar @crisisstudent.bsky.social · 08/01/2025

Or, to go back further in history, in the 1990s, it was a combination of structural and cyclical factors across multiple countries—Spain was around 20%, Italy above 10%, and Germany increasing towards 10%. 13/

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Kamil Kovar @crisisstudent.bsky.social · 08/01/2025

In 2010s it was instead a cyclical issue: Southern countries were going through severe and long-lasting recessions, which meant high unemployment rate, explaining why unemployment rate was so high during last decade. But nobody would consider those URs a proper benchmark. 12/

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Kamil Kovar @crisisstudent.bsky.social · 08/01/2025

For example, back in 05-07, Germany was still working through its post-unification issues. This structural factor almost singlehandedly explains why UR was higher in 2007 then it is now. But nobody would say that the German UR of 8% from back then is appropriate benchmark. 11/

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Kamil Kovar @crisisstudent.bsky.social · 08/01/2025

And that is exactly the case here: coincidentally, it was never the case that all the labour markets were synchronized in terms of having favorable cyclical and structural situations. 10/

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Kamil Kovar @crisisstudent.bsky.social · 08/01/2025

The answer is simple: Short historical sample and synchronization of countries. The series we are using has only 30 years of data, which amounts to a rather short macro history of 3-4 business cycles. In such a short history, coincidences can happen. 9/

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Kamil Kovar @crisisstudent.bsky.social · 08/01/2025

Alright, but how do we reconcile this with the fact that eurozone unemployment rate is way below any previous historical levels? What is going on? 8/

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Kamil Kovar @crisisstudent.bsky.social · 08/01/2025

Bottom line: It is hard to find a major eurozone country with an overly tight labour market. And if none of the individual countries labour markets are tight, then the eurozone labour market is not tight. 7/

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Kamil Kovar @crisisstudent.bsky.social · 08/01/2025

Instead of being tight, these labour markets should be seen as healing after the twin crises of 2008-2012. In other words, their unemployment rates are not too low; they were just really high last decade and it took them until now to heal. 6/

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Kamil Kovar @crisisstudent.bsky.social · 08/01/2025

Ok, so we need to look at countries where unemployment rate is lower than pre-pandemic, which mostly means Southern countries. Are those labour markets tight? That is hard case to make at unemployment rates that range from 6% to 10% and mostly are at or above pre-GFC values. 5/

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