German Recession Seen Weighing on Europe in Next Week's Data

A shallow German recession weighing on the euro area and a mild pickup in the region’s inflation may draw attention in a bumper series of data releases next week across the region.

(Bloomberg) — A shallow German recession weighing on the euro area and a mild pickup in the region’s inflation may draw attention in a bumper series of data releases next week across the region.

Gross domestic product in Europe’s biggest economy is predicted by forecasters to have shrunk by 0.1% in the third quarter, matching the result in the prior three months. While that would signify a recession, economists reckon stronger expansion elsewhere sustained a steady pace of growth in the currency zone, at 0.2%.

Inflation meanwhile is projected to have partially rebounded to 1.9% in October, in line with the bumpy path that policymakers expect before it settles around the 2% target in the first half of next year. A core measure — that strips out volatile elements such as energy — probably weakened.

The euro-zone reports for GDP on Wednesday and inflation the following day are among pivotal data for officials looking ahead to their final decision of 2024 on Dec. 12. With the most recent evidence pointing to feeble growth and tame consumer prices, traders have raised the chances of a 50 basis-point interest-rate cut.

“Incoming information on inflation shows that the disinflation process is well on track,” European Central Bank President Christine Lagarde told the International Monetary Fund’s annual meetings in Washington on Friday. “Recent indicators of economic activity have surprised somewhat to the downside.”

While Germany is seen to have experienced a manufacturing-led recession, the GDP reports on Wednesday should point to some strength elsewhere during the quarter as a whole, amid buoyancy in Spain, a slight acceleration in France — thanks to the Paris Olympics — and steady expansion in Italy, according to economists.

That may not last. Purchasing-manager numbers have shown a recent loss of momentum in the region, with a downtrend in the private sector extending into a second month.

Even so, the recession in Germany may turn out to be short-lived. The Bundesbank last week predicted that the economy will remain broadly stable toward end of the year, albeit “stuck in the phase of weakness that’s persisted since mid-2022.” 

In one sign of hope, the closely watched business outlook index compiled by the Munich-based Ifo institute rose to the highest since June, according to a release on Friday. 

While growth data will focus investors, they and policymakers will also hone in on the inflation numbers. In Germany, price growth is predicted by economists to have exceeded the ECB’s 2% target again. France, Italy and Spain and are seen to have experienced accelerations, but still below the goal.